An Option Agreement is a legal contract that gives one party the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time frame. This type of agreement is commonly used in real estate, where a buyer can secure the right to purchase a property while evaluating its potential. In an Option Agreement, the party holding the option pays a fee, known as an option premium, to the other party. If the buyer decides to exercise the option, the transaction proceeds at the agreed-upon terms. If not, the seller keeps the premium, and the agreement expires.