Option in the United States

Option Definition

“A right of choice or election. Sometimes applies specifically to contracts whereby one purchases the right for a certain time, at his election, to demand and receive or to deliver property at a stated price”, according to the definition of Option based on The Cyclopedic Law Dictionary . For other meanings of it, read Option in the Legal Dictionary here.

Practical Information

An agreement, usually in consideration for the payment of a certain sum of money by the offeree, to hold an offer open for a definite time. The offer ceases to be an offer and becomes a contract of option; it cannot be withdrawn until the option period expires. Although an option is generally based upon a consideration, a few states require no consideration if the contract is in writing. Others recognize an option under seal as binding because a seal, at common law (in U.S. law), indicates consideration. The consideration for an option is not returnable to the optionee if he or she fails to take up the option; it is however, usually applied to the purchase price if the offer is accepted. (Revised by Ann De Vries, 1982)

Legal Materials

The Chicago Board Options Exchange (CBOE) posts statistics, company listings, free real-time Quotes, etc. for commodities.

Quotes for puts and calls on listed stock options and stock index options are published in the “Index/Listed Options” section of The Wall Street Journal and the “Market Watch” section of Barron’s.

Historical quotes are available from Market Data Express and OptionsMetrics and Tick Data. You can also get data from Bloomberg for up to one year after the option expires.

CBOE Rule Filings: When the CBOE wants to change its rules, it is required to file the proposed rule change on Form 19B-4 with the SEC. The CBOE posts the proposed filing on its CBOE Rule Filings page in PDF format. These are also available in PDF format on Lexis Securities Mosaic.

The SEC then puts out a Release / Notice of the proposed rule change and solicits comments on the proposal. The Release / Notice is posted on the SEC’s CBOE Rulemaking page and published in the Federal Register (see “Federal Register“) and with other SEC Releases (see the “Securities and Exchange Commission” entry).

If the SEC approves the rule change, it will issue a Release / Order approving the rule change that is also published in the Federal Register and with other SEC Releases (see the “Securities and Exchange Commission” entry in this legal Encyclopedia).

The proposed rule filings and the SEC Releases all reference a unique “File Number” in the format: SR-CBOE-[year]-xxx. You can use this number when you search for any of the documents concerning that particular rule change.

Option in Foreign Legal Encyclopedias

For starting research in the law of a foreign country:

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Resources

See Also

• Legal Contracts.
• Gambling Contract
• Commodities and Commodities Regulation
• Commodities Futures Trading Commission
• Commodity Prices
• Futures Contracts
• Stock Prices

Further Reading (Articles)

• Option contract investments, New Straits Times; July 31, 2000
• Bearish Options, Futures (Cedar Falls, IA); August 1, 2004; Salcedo, Yesenia
• Options Backdating, The CPA Journal; October 1, 2007; Siegel, Marc A.
• Options system needs changes, but the right changes.(Knight Ridder Newspapers), Knight Ridder/Tribune News Service; April 10, 2002; Gillmor, Dan
• Options as a shield against a sec. 382 ownership change., The Tax Adviser; June 1, 1993; Bloom, Gilbert D.