Contracts to buy and sell come in all kinds of arrangements. One of the lesser-known varieties of contracts is known as an "option contract. A potential buyer has to give the seller some payment in exchange. In other words, in an option contract, the seller is agreeing to keep the "option" open for the buyer.

Option contracts are most commonly associated with the financial services industry, where a seller may option the opportunity to purchase stock at a certain price for a set period of time. By accepting a certain amount of money in exchange for this option, the seller has bargained away their right to revoke the offer. It's important to point out, however, that the party buying the option is under no obligation to actually exercise this option and purchase the stock, since he or she only bargained for the option to do so.

What Is an Option Contract? - FindLaw

These kinds of contracts are also common in real estate , where it may take a while for a potential buyer to conduct a full inspection of the property and secure funding, among other steps.

In this case, the seller and the prospective buyer may agree on a certain amount, for example, but the buyer needs to meet with her bank before fully committing. If the buyer agrees to the terms within the designated time period, then a binding contract is created for the deal. The option expires at the end of the period stated in the contract, regardless of whether the buyer exercises the option.

At first glance, option contracts may seem unnecessarily complicated. However, option contracts are extremely useful in markets wherein prices fluctuate quickly. Suppose you are an investor and you want to buy stock in a clothing manufacturer.

So you pay the company a small amount of money, such as 2 cents per share, in exchange for their promise to sell you the stock at its current price anytime in the next three months.

Failure to keep this option open is considered a breach of contract. Many employers offer option contracts as part of a benefit package. This is especially true of start-up companies.

Three Ways to Buy Options - unyyozeqy.web.fc2.com

Employee option contracts often give the employees the option to buy company stock at a much reduced price. Both the company and the employee then hope that the company's stock rises quickly.

For more information on contracts and other arrangements, see FindLaw's Contract Law section. If you are planning to draft or sign onto an option contract or any other kind of contract, for that matter , you may want to have it reviewed by a trained professional. A business and commercial law attorney can help you avoid mistakes before they become truly expensive, or worse.

Don't have an attorney? Consider getting a free legal evaluation of your small business contract needs at no cost to you.

Options Contract

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