Option

In one sentence

A contract giving one party the right to buy, sell, or do something at a set price within a time frame.

Plain English

An option is a deal where you pay for the right to make a choice later. For example, you might pay $500 for the option to buy a house at $300,000 anytime in the next 60 days. During that time, the seller can't back out or sell to someone else—you control whether the deal happens. Options are common in real estate, stock trading, and business deals.

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Example

A startup founder grants an investor the option to buy 10% of the company for $1 million within the next two years. The investor pays $50,000 upfront for this option. If the company does well, the investor can exercise the option and buy in at the agreed price. If not, the investor walks away and loses only the $50,000.

Used in a sentence

“The employee's stock option allowed her to purchase company shares at a locked-in price after a three-year vesting period.”

Related terms

Firm Offer

A written promise by a merchant to keep an offer open for a set time, which can't be revoked.

Contract Formation

The process by which parties create a legally binding agreement.

Revocation

An offeror's withdrawal of an offer before it's accepted, ending the power to form a contract.

Consideration

Something of value exchanged by each party to make a contract binding.

Offeror

The person who makes an offer to enter into a contract.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

Offeree

The person who receives an offer and has the power to accept or reject it.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.