Option Agreement: Definition, Terms & How It Works

An option agreement is a type of agreement between two parties that specifies the terms of an option contract. With this type of agreement, one person will have the option to buy a piece of property from the seller at a certain point in the future. 

Option Agreement

With this type of agreement, one person will pay the seller of the option a certain amount of option money. This money will reserve the right to purchase the property from the seller by a specific date in the future. The buyer has the opportunity to purchase the property, but she is not necessarily obligated to do so at any point. If she does not purchase the property, the seller will keep the option money and the option will expire with no value. This type of agreement can be used with securities, real estate and any other piece of property.

Option Brokers

In some cases, the term "option agreement" can also be used when referring to the agreement that a trader signs when he signs up with an options brokerage. This agreement will outline the risks involved with options trading and ensure that the trader knows what he is getting into.