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option


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N.

A right to do or not to do something, usually within a specified time. An enforceable option may be acquired by contract (i.e. for consideration) or by deed to accept or reject an offer within a specified period. An option to acquire land or an interest in it on specified terms will only bind third parties if it is registered (see registration of encumbrances). If an option to buy does not specify the price it will only be valid if it specifies a means for determining the price, e.g. by a valuation to be made by a specified third party who is or will be under a duty to act. Thus an option to buy at a price to be agreed is void for uncertainty.

On financial markets, options to sell or to buy a fixed quantity of a commodity, currency, security, etc., at a particular price are purchased for a certain sum of money, which is forfeited if they are not taken up. An option to sell is known as a put option, that to buy is a call option, and an option to either sell or buy is a double option. Under the Companies Act 1985, directors, shadow directors, and the spouses or children of either are prohibited from buying or selling options in the shares of their own company. See share option.

Subjects: Law.


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