Louise Norris, partner in our commercial property team, explains what an option agreement is and why the parties to the purchase of land want an option. The versatility of the options also means that certain strategies allow you to profit in a static market. For example, if you sell a put option, if you feel that the price of the underlying land remains stable or, at the very least, does not fall dramatically, you can include premium income. As the option is about to expire, the current value of your short put will be eroded and if, as you predicted, the underlying price has not changed much, you will be able to close your short put position with a cheaper premium than the one where you sold to open the position, and you will benefit from a profit. With respect to financial derivatives, the option agreement is a two-party contract that gives one party the right, but not the obligation, to acquire or sell an asset to the other party. It describes the agreed price and a future date for the transaction. The premium is sales tax and is charged by the author of the contract. This type of option agreement is most common in commodity markets. An option buys time. This time can be used in any way. The owner of the option may need time to raise funds.

They may need to seek the consent of others to participate in the transaction. Maybe he would like to find out before he commits. A developer may agree the purchase price with the landowner at the beginning of the option contract. This means that it is the security of upfront costs and developers may end up paying less than the market value. However, each price is often subject to the deduction of unforeseen costs. An option to purchase anything but land or financial instruments is a transaction that you can negotiate without interference by the law. You can buy an option to buy a domain name, patent or car under any condition. For most stock and futures options, the buyer and seller indirectly negotiate a formal exchange that supports the clearing functions and reduces the risk of counterparty default. For all other options that trade over-the-counter, the option agreement will provide corrective measures if a counterparty does not meet the terms of the contract. An option agreement may also be an agreement signed between an investor wishing to open an options account and his brokerage company.

The agreement is an audit of an investor`s level of experience and knowledge of the various risks associated with trading options contracts. It confirms that the investor understands the rules of the Option Clearing Corporation (OCC) and that they will not pose an unreasonable risk to the brokerage company. An investor is required to understand disclosure document options that includes different terminology options, strategies, tax impact and unique risks before the broker allows the investor to exchange options. Option agreements are useful in situations where there is an attractive possibility, but with some unknown contingencies that may make a conditional contract too uncertain or risky for one or both parties. When examining the mathematics of one option, there are several variables: It is a general principle of contract law that an offer cannot be attributed by the recipient of the offer to another party. However, an option contract may be sold (unless otherwise), allowing the option purchaser to put himself on the back of the original bidder and accept the offer to which the option relates. [7] With respect to certain types of assets (mainly land), an option must be registered in many countries to be mandatory for a third party.