<PAGE>
 
                                                                    Exhibit 10.4

                            STERLING SOFTWARE, INC.
                            1996 STOCK OPTION PLAN

                            Stock Option Agreement
                            ----------------------

     This Stock Option Agreement (the "Agreement") is entered into by and
between Sterling Software, Inc., a Delaware corporation (the "Company"), and
________ (the "Participant").  The Company and the Participant agree as follows:

     1.  Grant of Stock Option.  The Company hereby grants to the Participant
         ---------------------
effective as of ________ (the "Date of Grant"), upon the terms and conditions
set forth below and subject to the terms and conditions of the Company's 1996
Stock Option Plan (the "Plan"), an option (the "Stock Option") to purchase from
the Company a total of ________ shares of the Company's common stock, par value
$0.10 per share ("Common Stock"), at an exercise price per share equal to
________ (the "Option Price").  Any terms, when used in this Agreement with
initial capital letters but not defined herein, have the same meanings as in the
Plan, the provisions of which are incorporated into this Agreement by reference.
The Participant acknowledges receipt of a copy of the Plan.

     2.  Time of Exercise.  The Stock Option may be exercised, in whole or in 
         ----------------
part, at any time on or after the Date of Grant, without regard to whether the
Participant is an employee or director of the Company or any Subsidiary at the
time of exercise. In no event may the Stock Option be exercised in whole or in
part, however, after the expiration of the term described in Section 3 below.

     3.  Term.  The Stock Option will expire and all rights under this 
         ----
Agreement will terminate on the tenth anniversary of the Date of Grant.

     4.  Restrictions on Exercise.  The Stock Option:
         ------------------------

         (a) may be exercised only with respect to full shares and no fractional
     shares of Common Stock will be issued upon exercise of the Stock Option;
     and

         (b) may be exercised in whole or in part, but no certificates
     representing shares subject to the Stock Option will be delivered if any
     requisite registration with, clearance by, or consent, approval or
     authorization of, any governmental authority of any kind having
     jurisdiction over the exercise of the Stock Option, or issuance of
     securities upon such exercise, has not been obtained or secured.

     5.  Manner of Exercise.  The Stock Option may be exercised by written 
         ------------------
notice to the Company of the number of shares being purchased and the Option
Price to be paid, accompanied by full payment of the Option Price (a) in cash or
by check acceptable to the Company, (b) by the transfer to the Company of shares
of Common Stock owned by the Participant for at least six months and having an
aggregate fair market value per share at the date of exercise equal to the
<PAGE>
 
aggregate Option Price (provided that the payment method described in this
clause (b) will not be available at any time that the Company is prohibited from
purchasing or acquiring such shares of Common Stock), or (c) by a combination of
any of the foregoing, provided that payment of the Option Price may also be made
by deferred payment from the proceeds of sale through a bank or broker of some
or all of the shares to which the exercise relates. Any federal, state or local
taxes required to be paid or withheld at the time of exercise will be paid or
withheld in full prior to any delivery of shares upon exercise.

     6.  Transferability of Stock Options.  This Stock Option may be 
         --------------------------------
transferred by the Participant on five days prior written notice to the Company.
Such notice period may be waived in the discretion of the Secretary of the
Company. In the event of a transfer, the transferee will succeed to all of the
rights, restrictions and obligations of the Participant under this Agreement.

     7.  Rights as Stockholder.  Neither the Participant nor any of the 
         ---------------------
Participant's beneficiaries will be deemed to have any rights as a stockholder
with respect to any shares covered by the Stock Option until the issuance of a
certificate to the Participant for such shares.

     8.  Adjustments.  The number of shares of Common Stock covered by the Stock
         -----------
Option evidenced by this Agreement, and the Option Price thereof, will be
subject to adjustment as provided in the Plan.  No adjustment will be made for
dividends or other rights for which the record date is prior to the issuance of
the certificate or certificates representing shares issued pursuant to the Stock
Option.

     9.  Rights in Event of Death of Participant.  In the event of the death of 
         ---------------------------------------
the Participant, the Stock Option may be exercised by the Participant's estate
or a person who acquired the right to exercise the Stock Option by bequest or
inheritance or by reason of the death of the Participant. In no event may the
Stock Option be exercised after the expiration date set forth in Section 3.

     10. Stock Purchased for Investment.  Unless the shares are covered by a 
         ------------------------------
then current and effective registration statement under the Securities Act of
1933, as then in effect, the Participant, by accepting the Stock Option,
represents, warrants, covenants and agrees on behalf of the Participant and the
Participant's transferees that all shares of Common Stock purchased upon the
exercise of the Stock Option will be acquired for investment and not for resale
or distribution, and that upon each exercise of any portion of the Stock Option,
the person entitled to exercise the same will furnish evidence satisfactory to
the Company (including a written and signed representation) to the effect that
the shares are being acquired in good faith for investment and not for resale or
distribution. The Participant agrees to furnish or execute such documents as the
Company in its discretion deems necessary to (a) evidence such exercise of the
Stock Option, (b) determine whether registration is then required under the
Securities Act of 1933, as then in effect, and (c) comply with or satisfy the
requirements of the Securities Act of 1933, or any other federal, state or local
law, as then in effect.

                                      -2-
<PAGE>
 
     11. Notices.  Each notice relating to this Agreement will be in writing 
         -------
and delivered in person or by certified mail to the proper address. Each notice
will be deemed to have been given on the date it is received. Each notice to the
Company will be addressed to it at its principal office, now 300 Crescent Court,
Suite 1200, Dallas, Texas 75201, attention of the Secretary. Each notice to the
Participant or other person or persons then entitled to exercise the Stock
Option will be addressed to the Participant or such other person or persons at
the Participant's address specified below. Anyone to whom a notice may be given
under this Agreement may designate a new address by notice to that effect.

     12. Employment.  This Agreement does not confer upon the Participant any 
         ----------
right to be employed or to continue in the employ of the Company or any
Subsidiary, nor does it in any way interfere with the right of the Company or
any Subsidiary to terminate the employment of the Participant at any time.

     13. No Obligation to Exercise Stock Option.  This Agreement does not 
         --------------------------------------
impose any obligation upon the Participant to exercise the Stock Option.

     14. Amendments.  The Special Stock Option Committee, the Stock Option 
         ----------
Committee or the Board, as authorized pursuant to the Plan, may, without the
consent of the Participant, amend this Agreement, or otherwise take action, to
accelerate the time or times at which the Stock Option may be exercised, to
extend the term described in Section 3 above, to waive any other condition or
restriction applicable to the Stock Option or to the exercise of the Stock
Option, to reduce the Option Price and to make any other change permitted to be
made under the Plan without the consent of the Participant; and may amend the
Agreement in any other respect with the consent of the Participant.

     15. Governing Law.  This Agreement is intended to be performed in the 
         -------------
State of Texas and will be construed and enforced in accordance with and
governed by the laws of such State, except as to matters of corporate law, which
will be governed by the laws of the State of Delaware.

                                      -3-
<PAGE>
 
     IN WITNESS WHEREOF, the Company and the Participant have executed this
Agreement as of the ________.


                                STERLING SOFTWARE, INC.


                                By:
                                    -------------------------------------------
                                    Jeannette P. Meier
                                    Executive Vice President


                                PARTICIPANT:

                                -----------------------------------------------
                                Signature


                                -----------------------------------------------
                                Print Name

                                Social Security Number:
                                                        ----------------------

                                Address for Notice:

                                -----------------------------------------------
 
                                -----------------------------------------------

                                      -4-