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What Is An 'Option'?

An Option means taking a predefined action for a fixed period of time in exchange for a fee. (Example: movie tickets!)

Options allow the purchaser the ability to take an action without requiring them to do so.

Josh Kaufman Explains 'Options'

An Option is the ability to take a predefined action for a fixed period of time in exchange for a fee. Most people think of options as financial securities, but they’re all around us: movie or concert tickets, coupons, retainers, and licensing rights are all examples of options.

In exchange for a fee, the purchaser has the right to take some specific action—attend the show, purchase an asset, or buy a financial security at a particular price before the deadline.

In order to provide value via Options, you must:

1. Identify some action people might want to take in the future.
2. Offer potential buyers the right to take that action before a specified deadline.
3. Convince potential buyers that the option is worth the asking price.
4. Enforce the specified deadline on taking action.

Options are valuable because they allow the purchaser the ability to take a specific action without requiring them to take that action. For example, if you purchase a movie ticket, you have the ability to occupy a seat in the theater, but you don’t have to if a better option presents itself. When you purchase the ticket, all you’re purchasing is the right to exercise the option to see the movie at the time specified—nothing more.

Options are often used to keep specific courses of action open for a certain period of time before another transaction takes place. For example, in moving to Colorado from New York, my wife Kelsey and I put a deposit down on an apartment we hadn’t seen in person. The deposit ensured that the landlord wouldn’t rent the apartment to someone else before we moved.

Once we signed the official rental agreement, the deposit became a standard rental security deposit. If we had decided not to move forward, the landlord would have kept the deposit in compensation for holding the apartment for us, and would have been free to find another tenant. Thus, the option was beneficial for both of us.

Options are often an overlooked form of value—flexibility is one of the 3 Universal Currencies. Find a way to give people more flexibility, and you may discover a viable business model.

Questions About 'Options'

• Does delivering value via offering options make sense for your business idea?
• If so, what do you need to plan for to make it successful?

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"You pays your money and you makes your choice."

Punch, nineteenth-century British comic magazine, 1846

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Share this concept:

https://personalmba.com/option/

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