Option to Purchase Business Agreement

An option to purchase business agreement is made between a seller and a buyer that includes the option for the buyer to sell or buy an asset later.3 min read

An option to purchase business agreement is an contract that is made between a seller and a buyer that includes the option for the buyer to sell or buy an asset later on at a price agreed to in the options contract. Options to purchase can be used in commodities and securities transactions, for example.

Options Contract

Options contracts come in a variety of forms. For example, an exchange traded option is a guaranteed standardized contract settled through a clearing house, which includes:

• Commodity options.
• Cover stock options.
• Futures options.
• Index options.
• Bond and interest rate options.

Another example — the over-the-counter option — is a trade that occurs between two parties. This type of option includes currency exchange rate options, interest rate options, and more.

The key provision of this type of option is the opportunity to purchase one hundred shares of a security by a preset date at a given price. A premium, or a market-based fee, is charged by the options contract. A strike price is the stock price that is named in the contract.

A put options contract allows the buyer the option to sell the shares at the preset price by an agreed-upon date. The option expires if the purchases does not move to buy or sell by the set date.

An options contract allows traders the opportunity to hedge their stock positions. Simply put, options contracts allow a trader to take a leveraged position on a stock, while at the same time mitigating the risk that the full purchase would entail.