What is an option contract?

Hypo 1: Bob is selling his car for $1,000. Sam is interested in buying it, but first he needs to talk to his wife and make sure he can afford to buy it. Sam also knows that $1,000 is a great deal, and Amy is interested in purchasing the car as well. Bob tells Sam, "If you give me $5 right now, I will give you 7 days to decide if you want to buy the car." Sam gives Bob $5. Result: Sam has purchased an option contract with Bob that gives him 7 days to decide, during which time Bob may not make or accept any other offers for the car. Note that if 3 days later, Sam calls Bob and says, "Will you take $900 for it?" this would usually be a counter offer, which would terminate the original offer -- but since this is an option contract, Sam would still have 4 more days to accept the original offer for $1,000. The only exception to this rule is if Bob detrimentally relies on the rejection, which would be something to argue for or against on the exam.