<PAGE>

                                                                    EXHIBIT 10.3

                              JEFFERIES GROUP, INC.
                                OPTION AGREEMENT

      AGREEMENT dated as of [date] ("Grant Date"), between JEFFERIES GROUP,
INC., a Delaware corporation (the "Company") and [name] ("Optionee"). By
accepting the grant of the Option, the Optionee has agreed to the terms of this
Agreement.

I.    Options Granted

      The Company hereby confirms the grant, pursuant to the Company's 2003
Incentive Compensation Plan (the "Plan"), to Optionee, on Grant Date, of the
stock options specified in Part II below. Each of the options specified below
(each an "Option") represents the right to purchase the specified number of
shares of the Company's Common Stock, $.0001 par value per share, at the
specified Exercise Price per share, at such times as the right to exercise has
Vested and prior to the expiration of the Option and subject to such other terms
and conditions as are specified in Part II below and elsewhere in this
Agreement, including the Terms and Conditions of Option Grant(s) attached
hereto. The number of Shares Purchasable and the Exercise Price are subject to
adjustment as specified in the Plan.

II.   Principal Terms of Option

      Shares Purchasable:    [ ] shares
      Exercise Price:        [$XX] per share
      Vesting Date:          [date of vesting]
      Expiration Date:       2:00 p.m., Pacific Time, on the earlier of (i) the
                             date of Optionee's termination of employment with
                             the Company and its subsidiaries if such
                             termination occurs before the Vesting Date, (ii)
                             the 60th day following the termination of
                             Optionee's employment with the Company and its
                             subsidiaries if such termination occurs on or after
                             the Vesting Date, or (iii) [insert expiration date]

<PAGE>

                     TERMS AND CONDITIONS OF OPTION GRANT(S)

The following Terms and Conditions apply to each Option granted to you by
Jefferies Group, Inc. (the "Company") identified on the preceding page. Certain
specific terms of each Option, including number of Shares Purchasable, the
Vesting and Expiration Dates, and Exercise Price, are set forth on the preceding
page.

      1. Each Option is a non-qualified stock option granted to you under the
Company's 2003 Incentive Compensation Plan (the "Plan"), a copy of which is
available to you on the Company's Intranet (www.corp.jefco.com -- go to
PeopleNet, then to Plan Documents). You may also request a copy from the
Secretary of the Company. All of the terms, conditions and other provisions of
the Plan are incorporated by reference herein. If there is any conflict between
the provisions of this document and the provisions of the Plan, the provisions
of the Plan govern. By accepting the grant of each Option, you agree to be bound
by all the terms and provisions of the Plan (as presently in effect or later
amended), rules and regulations under the Plan adopted from time to time, and
decisions and determinations of the Company's Compensation Committee (the
"Committee") made from time to time.

      2. Subject to all applicable laws, rules, regulations and Section 6 of the
Plan, you may exercise each Option if and to the extent it has become vested and
exercisable on and after the specified Vesting Date and prior to the Expiration
Date of the Option.

      3. To exercise each Option, you must (a) give written notice, signed by
you, to the Secretary of the Company and (b) pay the Exercise Price of the
Option for the number of shares of Common Stock being purchased in full to the
Company in cash (including by check), payable in United States dollars, or as
otherwise permitted under the Plan or this Section 3. The notice will be deemed
to have been received on the earlier of personal delivery to the Secretary or
the date of delivery by overnight mail or other courier service to the office of
the Secretary (the "Exercise Date"). However, if your exercise notice and
payment are received after 1:59 p.m., Pacific Time, the Exercise Date will be
the next business day.

      Once you give notice of exercise, your notice may not be revoked. When you
exercise the Option, or part thereof, the Company will transfer or will cause to
be issued a certificate or certificates for the Common Stock being purchased as
promptly as practicable, with any legend deemed necessary or advisable by the
Secretary affixed to such certificate(s). You do not have any rights as a
stockholder with respect to any shares of Common Stock covered by the Option
until the Option has been properly exercised by you and the Exercise Price for
the shares has been paid.

      Unless otherwise determined by the Committee, you may pay all or part of
the Exercise Price by delivery and transfer to the Company of that number of
shares of the Company's Common Stock owned by you (and not acquired by exercise
of an option or otherwise under a Company plan within the prior six months,
unless otherwise determined by the Committee) with an aggregate Fair Market
Value equal to the aggregate Exercise Price to be paid thereby, or in any other
manner then permitted by the Committee, in accordance with any rules and
regulations adopted by the Committee.

<PAGE>

      4. As a condition to the exercise of each Option, the Company may require
you to make any representation and/or warranty to the Company as may be required
under any applicable law or regulation. In addition, each Option is subject to
cancellation or rescission if you fail to comply with certain conditions
relating to non-competition, confidential information, and intellectual
property, and in certain cases you may be required to repay amounts realized
upon exercise of the Option upon a failure to comply with such conditions, as
provided in Section 7.4 of the Plan.

      5. By accepting the grant of each Option, you agree to take any action
that the Company reasonably deems necessary to comply with federal and state
laws, or the rules and regulations of the New York Stock Exchange or any other
stock exchange.

      6. Unless otherwise determined by the Committee, you may not transfer any
Option to any third party other than by will or the laws of descent and
distribution, and, during your lifetime, only you or your duly appointed
guardian or legal representative may exercise the Option. You may designate one
or more beneficiaries to exercise your rights under the Option upon your death,
in the manner and to the extent permitted by the Committee under rules and
regulations adopted by the Committee under the Plan.

      7. The terms and conditions of each Option and the Plan are binding upon
the heirs, executors, administrators and successors of you and the Company.
These terms and the obligations of the Company and your rights hereunder may not
be added to or modified except in a writing signed by the Company.

      8. No Option or granting of the Option shall constitute or be evidence of
any agreement or understanding, express or implied, that you have a right to
continue as an officer or employee of the Company for any period of time, or at
any particular rate of compensation.

<PAGE>

                              JEFFERIES GROUP, INC.
                           DEFERRED COMPENSATION PLAN
                  As Amended and Restated as of January 1, 2003

                            SHARE OPTION CERTIFICATE

                              FIRST NAME, LAST NAME

      The SHARE OPTION CERTIFICATE, dated as of the __________________ (the
"Date of Issuance"), evidences and sets forth terms and conditions of the Share
Option (the "Option") granted by JEFFERIES GROUP, INC., a Delaware corporation
(the "Company") to ("Optionee"). By accepting the grant of the Option, the
Optionee has agreed to the terms set forth and incorporated into this
Certificate.

I.    Share Option Granted

      The Company hereby confirms the grant, pursuant to the Company's Deferred
Compensation Plan (the "DCP"), together with the 2003 Incentive Compensation
Plan (the "2003 ICP" and, with the DCP, the Plans) from which the Option shares
are drawn, of the Option specified in Part II below. The Option represents the
right to purchase the specified number of shares of the Company's Common Stock,
$.0001 par value per share, at the specified Exercise Price per share, following
the Date of Issuance and prior to the expiration of the Option and subject to
such other terms and conditions as are specified in Part II below and elsewhere
in this CERTIFICATE including the Terms and Conditions of Option Grant(s)
attached hereto. The number of Shares Purchasable and the Exercise Price are
subject to adjustment as specified in the Plans.

II.   Principal Terms of the Option:

      Shares Purchasable under the Option and the corresponding Exercise Prices
are as follows:

<TABLE>
<CAPTION>
SHARES PURCHASABLE                   EXERCISE PRICE PER SHARE                  STATED EXPIRATION DATE
------------------                   ------------------------                  ----------------------
<S>                                  <C>                                       <C>
</TABLE>

      Vesting Date:      Option is fully Vested at Date of Issuance

      Expiration Date:        2:00 p.m., Pacific Time, on the Stated Expiration
                         Date (relating to the specified shares in the table
                         above), provided that, if Optionee's employment with
                         the Company and its subsidiaries terminates at least 60
                         days before that date, the Expiration Date will

<PAGE>

                         be the 60th day following the later of the date of such
                         termination of employment or the Date of Issuance of
                         this Certificate.

                      TERMS AND CONDITIONS OF SHARE OPTIONS

The following Terms and Conditions apply to each Option granted to you by
Jefferies Group, Inc. (the "Company") and evidenced by the Share Option
Certificate ("Certificate") to which these Terms and Conditions are attached.
Certain specific terms of each Option, including number of shares purchasable,
the Vesting and Expiration Dates, and Exercise Price, are set forth on the
preceding page.

      1. Each Option is a non-qualified stock option granted to you under the
Company's Deferred Compensation Plan (the "DCP"), which is implemented under and
subject to the Company's 2003 Incentive Compensation Plan (the "2003 ICP" and,
with the DCP, the Plans), copies of which are available to you on the Company's
Intranet (www.corp.jefco.com -- go to PeopleNet, then to Plan Documents). You
may also request a copy from the Secretary of the Company. All of the terms,
conditions and other provisions of the Plans are incorporated by reference
herein. If there is any conflict between the provisions of this document and the
provisions of the Plans, the provisions of the Plans govern. By accepting the
grant of each Option, you agree to be bound by all the terms and provisions of
the Plans (as presently in effect or later amended), rules and regulations
adopted from time to time, and decisions and determinations made from time to
time by the Company's Compensation Committee (the "Committee") and any other
committee authorized to administer the Plan.

      2. Subject to all applicable laws, statutes, rules, regulations and
applicable provisions of the Plans, you may exercise each Option if and to the
extent it has become vested and exercisable on and after the specified Vesting
Date and prior to the Expiration Date of the Option.

      3. To exercise each Option, you must (a) give written notice, signed by
you, to the Secretary of the Company and (b) pay the Exercise Price of the
Option for the number of shares of Common Stock being purchased in full to the
Company in cash (including by check), payable in United States dollars or as
otherwise permitted under the Plans or this Section 3. This notice will be
deemed to have been received on the earlier of personal delivery to the
Secretary or the date of delivery by overnight mail or other courier service to
the office of the Secretary (the "Exercise Date"). However, if your exercise
notice and payment are received after 1:59 p.m., Pacific Time, the Exercise Date
will be the next business day.

      Once you give notice of exercise, your notice may not be revoked. When you
exercise the Option, or part thereof, the Company will transfer or will cause to
be issued a certificate or certificates for the Common Stock being purchased as
promptly as practicable, with any legend deemed necessary or advisable by the
Secretary affixed to such share certificate(s). You do not have any rights as a
stockholder with respect to any shares of Common Stock covered by the Option
until the Option with respect to such shares has been properly exercised by you
and the Exercise Price for the shares has been paid.

      Unless otherwise determined by the Committee, you may pay all or part of
the Exercise Price by delivery and transfer to the Company of that number of
shares of the Company's Common

<PAGE>

Stock owned by you (and not acquired by exercise of an option or otherwise under
a Company plan within the prior six months, unless otherwise determined by the
Committee) with an aggregate Fair Market Value equal to the aggregate Exercise
Price to be paid thereby, or in any other manner then permitted by the
Committee, in accordance with any rules and regulations adopted by the
Committee.

      4. As a condition to the exercise of each Option, the Company may require
you to make any representation and/or warranty to the Company as may be required
under any applicable law or regulation. The provisions of Section 7.4 of the
2003 ICP will not apply to the Option(s).

      5. By accepting the grant of each Option, you agree to take any action
that the Company reasonably deems necessary to comply with federal and state
laws, or the rules and regulations of the New York Stock Exchange or any other
stock exchange.

      6. Unless otherwise determined by the Committee, you may not transfer any
Option to any third party other than by will or the laws of descent and
distribution, and, during your lifetime, only you or your duly appointed
guardian or legal representative may exercise the Option. You may designate one
or more beneficiaries to exercise your rights under the Option upon your death,
in the manner and to the extent permitted by the Committee under rules and
regulations adopted by the Committee under the Plan.

      7. The terms and conditions of each Option and the Plan are binding upon
the heirs, executors, administrators and successors of you and the Company.
These terms and the obligations of the Company and the rights of Optionee
hereunder may not be added to or modified except in a writing signed by the
Company.

      8. No Option or granting of the Option will constitute or be evidence of
any agreement or understanding, express or implied, that you have a right to
continue as an officer or employee of the Company for any period of time, or at
any particular rate of compensation.