option

Right of election to exercise a privilege. Contract made for consideration to keep an offer open for prescribed period. A right, which acts as a continuing offer, given for consideration, to purchase or lease property at an agreed upon price and terms, within a specified time. An option is an agreement which gives the optionee the power to accept an offer for a limited time. Kelman v. Bohi, 27 Ariz.App. 24, 550 P.2d 671, 675.

An option to purchase or to sell is not a contract to purchase or sell, as optionee has the right to accept or to reject the offer, in accordance with its terms, and is not bound. Catmull v. Johnson, Utah, 541 P.2d 793, 795.

An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. Restatement, Second, Contracts, No. 25.

A privilege existing in one person, for which he has paid money, which gives him the right to buy certain commodities or certain specified securities from another person, if he chooses, at any time within an agreed period, at a fixed price, or to sell such commodities or securities to such other person at an agreed price and time. If the option gives the choice of buying or not buying, it is denominated a "call." If it gives the choice of selling or not, it is called a "put."

If it is a combination of both these, and gives the privilege of either buying or selling or not, it is called a "straddle" or a "spread eagle."

The sale or exchange of an option to buy or sell property results in capital gain or loss if the property is a capital asset.

See also call

- cash value option

- local option

- option to purchase

- put.

@ commodity futures option

The right-but not the obligation-to buy or sell a futures contract at a specified price within a fixed period, say, three, six, nine months or longer. The option buyer pays a premium to the dealer for this right, plus the usual commission and nothing else. The option buyer does not have to be concerned about margin calls. All he can lose is the premium paid and commission.

@ commodity option

A right that is purchased by the option holder entitling him either to buy ("call option") from or to sell ("put option") at a stated price and within a stated time an underlying physical commodity (such as a specific quantity of gold, a train carload of coffee, etc.), or a commodity futures contract relating to that commodity. The price paid for the option right is referred to as the "premium," and the price at which the option purchaser is entitled to buy or sell the underlying commodity for futures contract is referred to as the "striking price." "exercise" is the decision of an option holder to require performance by the grantor of his obligation with respect to the underlying commodity or futures contract. The period during which an option may be exercised is specified in the contract. The "exercise date" or "expiration date" is the final day on which the option holder may exercise the option.

See also option

@ index option

A type of security in which the holder has the right to buy or sell, for a specified price at a specified future date, a theoretical interest in stocks making up the index. The option is exercised in cash, in an amount equal to the difference between the closing level of the index on the exercise date and the exercise price of the option, multiplied by the index "multiplier." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Yang, C.A.Cal. 679 F.Supp. 981, 983.

@ naked options

Options sold by investors granting others the right to buy stock from them even though they own no stock to back up those commitments

@ option premium

The consideration paid to keep a contractual offer to buy or sell open for a specified period of time. Stock option. The right to buy stock in the future at a price fixed in advance.

See also stock

@ incentive stock option.

See qualified stock option, below.

@ non-qualified stock option

Stock option which does not meet the qualifications of a restricted stock option.

See restricted stock option, below.

@ qualified stock option

An option to purchase shares provided to an employee of the corporation under terms that qualify the option for special tax treatment under the Internal Revenue Code. I.R.C. No. 421 et seq.

+ qualified stock option

An option to purchase shares awarded to an employee of the corporation under terms that qualify the option for special tax treatment under the Internal Revenue Code

@ restricted stock option

A right granted to an employee prior to 1964 which allows such an employee to buy stock at a fixed price established in advance. The options are restricted with respect to the option price, time of exercise, amount owned by the optionee, nontransferability, and minimum holding period. Restricted stock options were replaced by Qualified Stock Options in 1964, and Incentive Stock Options in 1981. I.R.C. No. 424

@ optionee

One who receives an option

@ option spread

In securities trading, the difference between the option price and the fair market value of the stock at the time of exercise of the stock option. Divine v. C.I.R., C.A/2, 500 F.2d 1041, 1051

@ option to purchase

A bilateral contract in which one party is given the) right to buy the property within a period of time for k consideration paid to the seller. A right acquired by contract to accept or reject a present offer within a limited or reasonable time and is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. Crockett v. Lowther, Wyo., 549 P.2d 303, 308.

See also option

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