A real option constitutes a right, but not an obligation, to carry out a particular action, such as a concrete business project, at some point in the future. All resource-committing decisions in an organization can be construed as such real options and when they exert significant influence on the future business of the corporation they may be referred to as strategic options. Real options give additional value to the corporation because they can be exercised under favourable conditions and left alone if conditions turn out to be unfavourable. Hence, the more environmental change envisaged around the payoff from a resource-committing action, the higher the incremental value of the associated options, because they represent opportunities to execute investments under particularly favourable conditions.

Evaluating a real option entails an assessment of the value potential associated with the environmental dynamics surrounding the business opportunity. Whereas financial options valuation is based on the price development of an underlying asset, real options valuation is typically based on the investment value of the underlying project.

A major difference between financial options and real options is that financial options are based on assets that are traded in transparent markets, while real options are based on investment opportunities that are idiosyncratic to the corporation itself and often remain undisclosed to the market until the time of implementation. Financial options are written into legally binding contracts, while real options relate to the identification and planning of corporate investment opportunities.