A team option is a contract year the team can choose to pick up or decline, usually the last year of the deal, decided before free agency opens.
In HoopSim you can put a team option on the final year of any free-agent offer of two years or more, and first-round rookie deals carry team options on years three and four. Pick it up and the contract continues; decline it and the player becomes a free agent with your Bird rights still attached. Any team option undecided when free agency opens is decided for you by the AI's rule. An option year not yet picked up is not guaranteed: cutting the player before the decision leaves no dead money for it.
Rulebook: Options. Related: player option, rookie scale contract.