Option Contract

Definition: An option contract gives its holder a right, without an obligation, to enter a transaction on agreed terms within a specified time. An enforceable option limits the grantor’s ability to withdraw that opportunity.

Example

An owner grants a buyer 30 days to decide whether to purchase a parcel for an agreed price.

Keep the distinction clear

The option period, exercise procedure, and later closing date are separate matters. Whether an option payment is refundable or credited toward the price depends on the agreement.

Related terms

Optionee · Optionor · Unilateral Contract

Keep studying

Option Contracts: Who Is Bound, Consideration, and Exercising the Option

References: Cornell LII: option

Pronunciation (US): OP-shun KON-trakt (capitals show stress)

Pronunciation reference: Merriam-Webster