In the film industry, an option agreement is a contract that "rents" the rights to a source material to a potential film producer. It grants the film producer the exclusive option, literally, to purchase rights to the source material if they live up to the terms of the contract and make a film (or series) from it. Some examples of producers are movie studios, production companies, or an individual. Source materials are often a book, theatrical play, or screenplay; however, they may also be articles, video games, songs, or any other work of intellectual property. The term is often used as a verb. For example, "Paramount optioned a short story by Ted Chiang." Overview When a work is optioned, the producer has not actually purchased the right to use the source material; they have simply purchased the option to purchase the rights to the work at some point in the future, if they are successful in setting up a deal to actually film a movie (or series) based on it. Purchasing the actual rights to a work is called "exercising" the option. This requires another contract, the "Rights Purchase Agreement". Option agreements detail the rights of the producer and the original author, including how long the agreement lasts, the fees paid to the author, and any plans for rights associated with derivative works (for example, a future prequel to a book). The producer usually has to outline their plan for financing, writing, casting, and shooting the film or series. Financially, the contract qualifies as a financial option and may be valued by applying real options analysis. Exclusivity Film option agreements last for a set amount of time, which is called the 'option period' and is often around eighteen months. After the option period expires, the producer no longer has an exclusive right to buy the screenplay and the original work's rights are returned to the author. Fees Most option agreements have two option periods, which have separate timelines and fees. The initial option fee is negotiated during the original agreement. They vary greatly from deal to deal. The fee for the first option period can be detracted from any income received from the project after the original work is exercised, while the fee for the extension cannot. A portion of the film's financing is usually used to pay the exercise price. This is also called the 'purchase price', for obvious