Option Contract

In one sentence

A binding agreement giving one party the right to buy, sell, or perform within a set time.

Plain English

An option contract gives someone the power to make a choice later, and the other person must honor that choice if they decide to use it. You might pay a small fee to lock in the right to buy a house at a specific price for the next 60 days. During that time, the seller can't sell to anyone else at a different price—you control whether the deal happens. The person holding the option decides; the other party must comply.

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Example

A company pays $5,000 for an option to purchase a piece of land at $500,000 anytime within the next year. If the land value rises to $600,000, the company can still buy it at the agreed price. If they don't want it, they simply don't exercise the option and lose the $5,000.

Used in a sentence

“The investor held an option contract that allowed her to purchase the stock at a fixed price before the deadline.”

Related terms

Revocation of Offer

A withdrawal of an offer by the person who made it, ending the other party's power to accept.

Rejection of Offer

A clear refusal to accept an offer, which ends the offer's power to create a contract.

Implied Contract

A contract where the parties' intent to be bound is shown by conduct rather than explicit words.

Terms and Conditions

The specific rules and requirements that govern a contract or agreement.

Entire Agreement Clause

A contract provision stating that the written agreement is the complete and final deal between parties.

Performance

The act of doing what a contract requires, such as delivering goods or paying money.

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.

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.