Option Agreement

DEFINITION of 'Option Agreement'

1. A signed agreement between an investor who is seeking to open an options account and his or her brokerage firm. This agreement is used to verify the investor's level of experience and to ensure that the investor clearly understands the various risks involved when trading options.

2. An agreement between two parties that provides one of the parties with the right but not the obligation to buy, sell or obtain a specific asset at an agreed upon price at some time in the future.

BREAKING DOWN 'Option Agreement'

1. This agreement illustrates that the investor understands the rules set forth by the options clearing corporation and that he or she will not be an undue risk to the brokerage firm. An investor is generally required to understand the option disclosure document, which highlights various options terminology, strategies, tax implications and unique risks, before the broker will allow the investor to trade options.

2. A common type of option agreement is found in the real estate market, where one party buys the right to have the first chance of purchasing a piece of property at a specific price at some point in the future. Another common type of option agreement is a written outline that provides the details of an employee's ability to obtain stock options.

RELATED TERMS
  1. Trading Partner Agreement

    An agreement drawn up by two parties that have agreed to trade ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  3. Option Disclosure Document

    A publication issued by the Options Clearing Corporation (OCC) ...
  4. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  5. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Investing

    Types of Options

    There are many different types of options. In addition to general put options and call option, we will discuss 13 different types of options. Some of these option types are better suited to day ...
  2. Trading

    Trading Options on Futures Contracts

    Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ...
  3. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  4. Investing

    Rent To Own; Own To Rent

    This method can help first-time buyers afford a home using a rent-to-own strategy, and it can also be good for investors.
  5. Investing

    A Newbie's Guide To Reading An Options Chain

    Learning to understand the language of options chains will help you become a more informed trader.
  6. Markets

    How to Make Money by Trading Index Options

    Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction.
  7. Trading

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
  8. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  9. Trading

    Top U.S-Regulated Option Brokers

    Options trading requires amassing significant capital and then facing high volatility. To protect yourself, ensure you trade only with regulated brokers. Here is a list of top U.S.-regulated ...
  10. Investing

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
RELATED FAQS
  1. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  2. When does one sell a put option, and when does one sell a call option?

    The incorporation of options into all types of investment strategies has quickly grown in popularity among individual investors. ... Read Answer >>
  3. Do you have to be an expert investor to trade put options?

    Learn about investing in put options and the associated risks. Explore how options can provide risk, which is precisely defined ... Read Answer >>
  4. Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar ... Read Answer >>
  5. What is the difference between derivatives and options?

    Learn how options are one type of derivative and how equity options derive their value from a stock, and understand other ... Read Answer >>
  6. What is index option trading and how does it work?

    Learn about stock index options, including differences between single stock options and index options, and understand different ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center