<PAGE>   1
                                                                 EXHIBIT 99.7


                             STOCK OPTION AGREEMENT

         Option Agreement made May 12, 1992, between Hastings Books, Music &
Video, Inc., a Texas corporation, hereinafter referred to as the corporation,
and John H. Marmaduke the Chief Executive Officer of the Corporation,
hereinafter referred to as Marmaduke.

                                    RECITALS

         The corporation deems Marmaduke to be an important and valuable Chief
Executive Officer and deems it to be in the corporation's best interest and in
the interest of its shareholders to provide Marmaduke an incentive to increase
his proprietary interest in the corporation and desires to enter into this
Agreement to grant to him an option to purchase 80,000 shares of the common
shares of the corporation on certain terms and conditions.

         In consideration of the mutual covenants and promises hereinafter set
forth and for other good and valuable consideration, the corporation and
Marmaduke agree as follows:

         1.      The corporation hereby irrevocably grants to Marmaduke, as a
matter of separate agreement and not in lieu of salary or other compensation
for services, the right and option, hereinafter called the "Option" to purchase
all or any part of an aggregate of 80,000 full shares of authorized by
non-issued common stock of the corporation on the terms and conditions herein
set forth.  Unless otherwise provided herein, this Option may not be exercised
prior to February 1, 1997.  Thereafter, the Option shall be exercisable in full
or in part from time to time until January 31, 2007, at which time this Option
shall terminate.
<PAGE>   2
         2.      The purchase price of the shares of common stocks subject to
                 this option shall be as follows:

<TABLE>
<CAPTION>
          Fiscal Year Option is Exercised                         Purchase Price per Share
          -------------------------------                         ------------------------
                (ending January 31)
               <S>                                                       <C>
                        1993                                             $39.20
                        1994                                              43.90
                        1995                                              49.17
                        1996                                              55.07
                        1997                                              61.68
                        1998                                              69.08
                        1999                                              77.37
                        2000                                              86.66
                        2001                                              97.06
               2002 (and thereafter)                                     108.70
</TABLE>

         3.      If the corporation shall issue any additional shares of stock
by way of a stock dividend on, or split up, subdivision, or reclassification of
outstanding common shares, then this Option shall be deemed to cover such
additional shares to the extent that the same would have been issued to
Marmaduke had such option been exercised in its entirety at the time of such
issuance of additional shares, and there shall be a corresponding proportionate
adjustment of the option price per share so that in the aggregate the option
price for all shares then covered shall be the same as the aggregate option
price for the shares remaining subject to the Option immediately prior to the
issuance of such additional shares.

         4.      Anything contained herein to the contrary, upon the
dissolution or liquidation of the corporation or upon any merger or
consolidation in which the company is not the surviving corporation, prior to
the time that this Option shall become exercisable, Marmaduke shall have the
right, immediately prior to


                                     -2-
<PAGE>   3
such dissolution, liquidation, merger, or consolidation, to exercise the Option
in full even though not otherwise exercisable.

         5.      This Option shall not be transferrable by Marmaduke otherwise
than by will and by the laws of dissent and distribution.  During the lifetime
of Marmaduke, the Option shall be exercised only by him.

         6.      If Marmaduke shall die at any time prior to the expiration of
this Option, the person or persons to whom the Option shall have been
transferred by Will or the laws of dissent or distribution shall have the right
within one year from the date of Marmaduke's death, to exercise in whole or in
part the unexercised portion of this Option, but only to the extent that this
Option is exercisable on the date of Marmaduke's death.

         7.      Upon the termination of Marmaduke's employment by reason of
permanent disability (as determined by the Board of Directors), Marmaduke may,
within twelve (12) months from the date of termination exercise any portion of
this option to the extent that such option is exercisable during the twelve
(12) month period.  Upon termination of Marmaduke's employment due to
retirement with the consent of the Board of Directors, Marmaduke may, within
three (3) months after termination, exercise any option to the extent this
Option is exercisable on the date of termination of employment.  Except as
provided above, this Option shall terminate upon the termination of Marmaduke's
employment with the corporation.

         8.      Payment for shares of stock purchased upon exercise of this
Option shall be made in full in cash.





                                      -3-
<PAGE>   4
         9.      The corporation will at all times during the terms of this
Option reserve and keep available for issue such number of shares of its
authorized and unissued common stock as will be sufficient to satisfy the
requirements of this Option Agreement.

         10.     This Option may not be exercised until this Agreement shall
have been submitted to and approved by the shareholders of the corporation or
until the shareholders of the corporation have otherwise waived their preemptive
rights, if any, with respect to the shares issuable upon exercise of this
Option.

         11.     This Option Agreement shall be subject to and governed by the
laws of the State of Texas.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
Amarillo, Texas, the day and year of first above written.


                                      HASTINGS BOOKS, VIDEO, INC.



                                      By: /s/ ILLEGIBLE
                                         ------------------------------------
                                         Chairman of the Board


                                      /s/ JOHN H. MARMADUKE  
                                      ---------------------------------------
                                      John H. Marmaduke


                                      -4-

<PAGE>   5
                                                           
                      AMENDMENT TO STOCK OPTION AGREEMENT

         WHEREAS, Hastings Entertainment, Inc. (the "Company") granted to JOHN
H.  MARMADUKE ("Recipient") a stock option for 80,000 shares of stock dated May
12, 1992, pursuant to that certain Option Grant Agreement No. 5; and

         WHEREAS, the grant agreement provided that the exercise price of the
option would increase over time; and

         WHEREAS, the Board of Directors of the Company determined that it
would be in the best interest of the Company to amend the exercise price for
such option and fix it for the term of the option; and

         WHEREAS, Recipient is agreeable to the establishment of a fixed price
for the option.

         NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Recipient have
agreed as follows:

         1.               Option Grant Agreement No. 5 is amended as of January
                          15, 1998 to provide for a fixed exercise price of $56
                          per share for all shares granted under such Option
                          Grant Agreement.


         2.               Except as amended herein, all terms and conditions of
                          the Option Grant Agreement No. 5 shall remain in full
                          force and effect.

         WHEREFORE, the parties have executed this Amendment to Option Grant
Agreement No. 5 as of January 15, 1998.

COMPANY:                                 HASTINGS ENTERTAINMENT, INC.


                                         By: /s/ PHILLIP HILL
                                            -----------------------------------
                                            Phillip Hill, Senior Vice President


RECIPIENT:

                                         /s/ JOHN H. MARMADUKE
                                         ----------------------------
                                         John H. Marmaduke