From BR Bullpen
An option can refer to two different things in a baseball context.
 Minor League Options
In this context, an option is the right which a Major League team has to send a player on its Major League roster to the minor leagues for more seasoning. Typically, a team has three yearly options which it can use on a player. Once a team has exhausted its options on a player, it cannot send him to the minor leagues without placing him on waivers, and therefore exposing him to being claimed by every other team in the majors. A player who is sent to the minor leagues on option must remain on the team's major league roster. The alternative is to send the player to the minor leagues "outright". This means that the player cannot be brought back without clearing waivers first, and may become a free agent if he has sufficient years of service. The entire minor league option system was designed to prevent players from being buried in the minor leagues forever, by forcing teams to make a decision within a limited number of years on whether or not they can use a player in the Major Leagues.
 Contract Options
The traditional Major League contract gave the signing team the right to retain a player for the following year even if his contract had expired. This was also known as the reserve clause. In December 1975, a landmark ruling by arbitrator Peter Seitz, in the case of pitchers Andy Messersmith and Dave McNally, overthrew this interpretation. Seitz ruled that the team's option was only valid for one year after the expiration of the original contract, and could not be renewed indefinitely, year after year. Once that option year was completed without a new contract being signed, as was the case for the two pitchers, the players should become free agents, able to sign with any team that wishes to offer them a contract. This ruling opened the door for widespread free agency, beginning after the 1976 season.
Modern player contracts also include option clauses. These are either team options or player options. In the first case, the team has the right, if it so wishes, to extend the player's contract for one or more additional years at a pre-determined salary level (these options are usually accompanied by a buy-out clause if the team does not exercise the option). A player option allows a player to extend his contract for one or more years at a pre-determined salary, or to choose to become a free agent. Often, options will vest automatically if a player accumulates a certain amount of playing time in his last contract year. This is a form of protection for a player that ensures he will not be over-used in the last year of his contract, risking injury, and then discarded once the season is over.
 Further Reading
- Roger I. Abrams: "Arbitrator Seitz Sets the Players Free", in The Baseball Research Journal, SABR, Volume 38, Number 2 (Fall 2009), pp. 79-85.