What are the Advantages of an Options Contract? | JGCG (2024)

An options contract is a legal agreement and tool that is used between the contracting parties to facilitate a potential transaction. In this agreement, one party is given the right to purchase or sell an asset underlying the agreement at a price established at the time the contract is executed. The set price is referred to as the “strike price.” Assets that are commonly subject to an options contract include securities, commodities, and real estate. The option to purchase the asset extends until the expiration date of the contract. What are the main advantages of an options contract? We’ll take a closer look at those here.

What are the Advantages of an Options Contract?

There are benefits to both the buyer and seller in an options contract. Upon entering into the agreement, the seller receives a payment, the “premium.” The seller gets this premium regardless of whether or not the buyer exercises the option right. On the other side of things, the buyer gets the advantage that come with the right to buy or sell the underlying asset, but is not required to buy or sell the asset. Furthermore, the buyer gets to pay a relatively low price for locking in the strike price. In other words, they can secure the right to acquire an asset at a set price without needing to put much money up front. The strike price in an options contract also tends to be a bargain on what the asset would usually go for or would possibly go for down the road.

While options contracts are most frequently used in the financial industry, they can be commonly found in other realms as well. For instance, options contracts are often found in real estate transactions. An options contract can make a great place holder if a potential buyer needs more time to secure property and take other necessary steps prior to purchase. In the meantime, the options contract gives the buyer and seller to agree on a selling price while the buyer shores up outstanding business prior to purchase.

Options contracts are also very common in the employment context. Companies often offer options contracts in their benefit packages. For example, an employee may be given the option to purchase company stock at a discounted price. This gives the employee an investment opportunity while also giving employees a vested interest in the success of the company. When the company succeeds, their stock goes up and so it is in the employee’s best interest to work hard and dedicate themselves to the success of the company. You can see why such an options contract is appealing to small businesses and start-ups.

Business Law Attorneys

Have you considered the use of an options contract in your business? It’s many advantages can make it an attractive options to furthering business interests in a number of contexts. Talk to the team at Jones, Gregg, Creehan & Gerace for more information. Contact us today.