An option is an agreement that conveys the right to purchase property or engage in a transaction in the future upon agreed-upon terms.
As defined in 7 U.S.C. Section 1a(36), the term "option" means "an agreement, contract, or transaction that is of the character of, or is commonly known to the trade as, an 'option', 'privilege', 'indemnity', 'bid', 'offer', 'put', 'call', 'advance guaranty', or 'decline guaranty'."
Some common uses of the term “option” in a legal sense include:
- In the context of contracts, cases such as this one from Texas, explain that “an option is a privilege or right that the owner of the property gives another to buy certain property at a fixed price within a certain time.” Additionally, this case from Colorado, explains that “ a contract of sale creates mutual obligations on part of seller to sell and on part of purchaser to buy, while option gives right to purchase, within limited time, without imposing any obligations to purchase.”
- In the context of sales, this case from the U.S. Tax Court, explains that “an option normally provides a person a right to sell or to purchase at a fixed price within a limited period of time, but imposes no obligation on the person to do so.”
- In the context of corporations and business organizations, cases such as this one from Illinois, explain that “a stock option is the right to buy a share or shares of stock at a specified price or within a specified period.”
[Last updated in August of 2021 by the Wex Definitions Team]