<PAGE>
 
                                                                   Exhibit 10.7
                                                                   ------------


                       TCI SATELLITE ENTERTAINMENT, INC.


                    Option to Purchase Series A Common Stock


     THIS AGREEMENT ("Agreement") is made as of the 4th day of December, 1996,
                                                    ---
by and between TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the 
"Company"), and Larry E. Romrell ("Grantee").

     Prior to the date hereof the Company has been a subsidiary of Tele-
Communications, Inc., a Delaware corporation ("TCI"), and a member of the TCI
Group, as defined in TCI's annual report on Form 10-K for the fiscal year ended
December 31, 1995. In consideration for services performed by Grantee for the
benefit of TCI and its Subsidiaries and affiliates, including, without
limitation, services for the benefit of the Company and its predecessors, and to
encourage Grantee to remain in the employ of TCI and its Subsidiaries, the Board
of Directors of TCI (the "TCI Board"), with the approval of the Compensation
Committee of the TCI Board (the "TCI Committee"), and the Board of Directors of
the Company ("Company Board") have determined to grant Grantee the rights and
option herein, on the terms and subject to the conditions set forth herein.
Capitalized terms used herein and not otherwise defined are defined in paragraph
18 hereof.

         Accordingly, the Company and Grantee hereby agree as follows:

     1.  Grant of Option; Option Term.  The Company hereby grants to Grantee the
right and option (the "Option"), on the terms and subject to the conditions set
forth herein, to purchase the Option Shares from the Company for a price per
Option Share equal to the Option Price.  Subject to paragraph 2 hereof, the
Option shall be exercisable in whole at any time and in part from time to time
during the period commencing on the date hereof and expiring at 5:00 p.m.,
Denver, Colorado time ("Close of Business") on the tenth anniversary of the
Determination Date, or such earlier date as the Option may be terminated
pursuant to paragraph 6 hereof (the "Option Term").

     2.  Conditions of Exercise; Vesting.  Except as otherwise provided in the
second to last sentence of this paragraph 2, the Option shall not be exercisable
until the first anniversary of the Determination Date, and, from the first
anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the Option shall be exercisable only to the extent the
Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE>
 
<TABLE>
<CAPTION>
 
  Anniversary of      Percentage of Option Shares 
Determination Date       Available for Purchase
------------------    -----------------------------
<S>                  <C>
       1st                        20% 
       2nd                        40% 
       3rd                        60% 
       4th                        80% 
       5th                       100% 
</TABLE>

     Notwithstanding the foregoing, all Option Shares shall become available for
purchase if during the Option Term (i) Grantee's employment with TCI and its
Subsidiaries shall terminate by reason of (x) termination by TCI or any
Subsidiary without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and TCI or any
Subsidiary which expressly permits Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage of
time) or (iii) Grantee dies while employed by TCI or a Subsidiary.  Grantee
shall give the Company prompt written notice of any termination of Grantee's
employment with TCI and its Subsidiaries, and shall provide the Company with
such other information regarding the circumstances of such termination of
employment as the Company shall reasonably request, and shall cooperate with the
Company in good faith in connection with any reasonable investigation by the
Company relating to such termination of employment.

     3.  Manner of Exercise.  The Option may be exercised only by delivering to
the Company all of the following and shall be considered exercised (as to the
number of shares specified in the notice referred to in clause (a) below) on the
later of (i) the first business day on which the Company has received all of the
following deliveries and (ii) the date of exercise designated in the written
notice referred to in clause (a) below (or if such date is not a business day,
the first business day thereafter):

         (a)  written notice, in such form as the Company Board may reasonably
     require, stating that Grantee is exercising the Option and setting forth
     the date of such exercise, the number of Option Shares to be purchased, the
     aggregate purchase price to be paid for such Option Shares in accordance
     with this Agreement and the manner in which such payment is being made;

         (b)  payment of the Option Price for each Option Share to be purchased
     upon such exercise, in cash or in such other form or combination of forms
     of payment contemplated by paragraph 10 hereof, together with payment of,
     or other provision acceptable to the Company Board for, any and all
     withholding taxes required to be withheld by the Company (or by TCI, if
     applicable) upon such exercise, in accordance with paragraph 4 hereof; and

                                       2
<PAGE>
 
         (c)  any other documentation that the Company Board may reasonably
     require (including, without limitation, proof satisfactory to the Company
     Board that the Option is then exercisable for the number of Option Shares
     set forth in such notice).

     4.  Withholding for Taxes.  It shall be a condition precedent to any
exercise of the Option that Grantee make provision acceptable to the Company
Board for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company (or by TCI, if applicable) to
satisfy the tax liability associated with such exercise, as determined by the
Company Board.

     5.  Delivery by the Company.  As soon as practicable after receipt of all
the items required by paragraph 3 hereof with respect to any exercise of the
Option, and subject to the withholding referred to in paragraph 4 hereof, the
Company shall deliver or cause to be delivered to Grantee certificates issued in
Grantee's name for the number of whole Option Shares purchased upon such
exercise.  If delivery is by mail, delivery of Option Shares shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment (for fractional shares or otherwise) shall be deemed
effected when a Company check, payable to Grantee and in an amount equal to the
amount of the cash payment, shall have been deposited in the United States mail,
addressed to Grantee, in each case in accordance with Section 12.

     6.  Early Termination of Option.  Unless otherwise determined by the TCI
Committee in its sole discretion, by written notice to Grantee and the Company,
the Option shall terminate, prior to the expiration of the ten-year period
provided for in paragraph 1 hereof, as follows:

         (a)  If Grantee's employment with TCI and its Subsidiaries terminates
     other than (i) by Grantee with Good Reason, (ii) by reason of Grantee's
     death or Disability, (iii) with the written consent of TCI or the
     applicable Subsidiary, (iv) without such consent if such termination is
     pursuant to provisions of a written employment agreement, if any, between
     the Grantee and TCI or the applicable Subsidiary which expressly permits
     the Grantee to terminate such employment upon the occurrence of specified
     events (other than the giving of notice and passage of time), or (v) by TCI
     with or without Cause, then the Option shall terminate at the Close of
     Business on the first business day following the expiration of the 90-day
     period beginning on the date of termination of Grantee's employment;

         (b)  If Grantee dies while employed by TCI or one of its Subsidiaries,
     or prior to the expiration of a relevant period of time during which the
     Option remains exercisable as provided in this paragraph 6, the Option
     shall terminate at the Close of Business on the first business day
     following the expiration of the one-year period beginning on the date of
     death;

         (c)  If Grantee's employment with TCI and its Subsidiaries terminates
     by reason of Disability, then the Option shall terminate at the Close of
     Business on the first business 

                                       3
<PAGE>
 
     day following the expiration of the one-year period beginning on the date
     of termination of Grantee's employment;

         (d)  If Grantee's employment with TCI and its Subsidiaries is
     terminated by TCI or any Subsidiary for Cause, then the Option shall
     terminate immediately upon such termination of Grantee's employment; and

         (e)  If Grantee terminates his employment with TCI and its Subsidiaries
     (i) with Good Reason, (ii) with the written consent of TCI or the
     applicable Subsidiary or (iii) pursuant to provisions of a written
     employment agreement, if any, between Grantee and TCI or the applicable
     Subsidiary which expressly permits the Grantee to terminate such employment
     upon the occurrence of specified events (other than the giving of notice
     and passage of time), or if TCI terminates Grantee's employment with TCI
     and its Subsidiaries without Cause, then the Option Term shall not
     terminate prior to the end of the ten-year period provided for in paragraph
     1 hereof, except as otherwise provided in paragraph 6(b) above.

         In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the extent
it was exercisable as provided in paragraph 2 above on such date of termination
                      --------  
of Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 6, provided that, after giving
effect to such change, Grantee continues to be an employee of TCI or any
Subsidiary. Anything contained herein to the contrary notwithstanding, the
Option shall in any event terminate upon the expiration of the ten-year period
provided for in paragraph 1 hereof, if not theretofore terminated.

     7.  Nontransferability of Option.  During Grantee's lifetime, the Option is
not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, is exercisable only by Grantee or
Grantee's court appointed legal representative.  Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company,
provided that no such designation shall be effective unless so filed prior to
the death of Grantee.  If no such designation is made or if the designated
beneficiary does not survive Grantee's death, the Option shall pass by will or
the laws of descent and distribution.  Following Grantee's death, the Option, if
otherwise exercisable, may be exercised by the person to whom the Option passes
according to the foregoing, and such person shall be deemed to be Grantee for
purposes of any applicable provisions of this Agreement.

     8.  No Shareholder Rights.  Grantee shall not be deemed for any purpose to
be, or to have any of the rights of, a stockholder of the Company with respect
to any Option Shares unless and until such Option Shares have been issued to
Grantee by the Company.  The existence of this 

                                       4
<PAGE>
 
Agreement or the Option shall not affect in any way the right or power of the
Company or its stockholders to accomplish any corporate act.

     9.  Adjustments.  (a) The Option shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Company Board and in such manner as the
Company Board may deem equitable and appropriate in connection with the
occurrence of any of the events described in Section 4.2 of the TCI Satellite
Entertainment, Inc. 1996 Stock Incentive Plan (the "Plan") following the
Determination Date; provided, however, that adjustments shall be made to the
                    --------  -------
Option if, and in the same manner that, adjustments are being made in connection
with the occurrence of any such event to any stock option granted under the
Plan. Adjustments to the Option Price shall be made on a per share basis so that
the aggregate remaining Option Price is unchanged.

         (b)  If the Distribution does not occur prior to the time that the
Option first becomes exercisable, the Option Price and Option Shares shall be
appropriately adjusted so that the Option shall be exercisable, in the
aggregate, for 1% of the issued and outstanding common equity of the Company
(after giving effect to the transactions contemplated by the Reorganization
Agreement other than the Distribution), for an aggregate purchase price equal to
1% of TCI's Net Investment as of the date the Option first becomes exercisable,
but excluding any portion of TCI's Net Investment that as of such date is
represented by a promissory note or other evidence of indebtedness from the
Company (or any of its subsidiaries) to TCI (or any Subsidiary of TCI).

     10. Manner of Payment. The method or methods of payment of the Option Price
for the shares of Company Series A Common Stock to be purchased upon exercise of
the Option and any amounts required by paragraph 4 shall consist of (i) cash,
(ii) check, (iii) promissory note in such form as shall be acceptable to the
Company Board (except that this method of payment will not be available for
amounts required by paragraph 4), (iv) whole shares of Company Series A Common
Stock and/or Company Series B Common Stock already owned by Grantee, (v) the
withholding of shares of Company Series A Common Stock issuable upon exercise of
the Option, (vi) the delivery, together with a properly executed exercise
notice, of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds required to pay the purchase price,
or (vii) any combination of the foregoing methods of payment, as Grantee may
elect and shall designate in the exercise notice provided for in paragraph 3
hereof, subject, however, to any restrictions or limitations of applicable law
or of any agreement evidencing indebtedness of the Company for borrowed money.
Any shares of capital stock delivered or withheld in payment of any amount due
hereunder shall be valued for such purposes at the Fair Market Value of such
shares on the applicable date of exercise of the Option.

     11. Restrictions Imposed by Law.  Grantee acknowledges that neither the
Option nor any of the Option Shares has been registered under the Securities Act
of 1933 and that the Option Shares may not be transferred in the absence of such
registration or the availability of an exemption therefrom under such Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.  Neither the Company nor any other person shall have any obligation
to 

                                       5
<PAGE>
 
register any Option Shares, or any transfer of Option Shares, under the
Securities Act of 1933, the Securities Exchange Act of 1934 or any other state
or federal securities law.  Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for the
Company shall require in order to insure compliance with any such law or any
rule or regulation promulgated thereunder.  Grantee agrees that Grantee will not
exercise the Option (and that the Company shall not be obligated to deliver any
Option Shares upon any exercise of the Option) if counsel for the Company
determines that such exercise or delivery would violate any applicable law or
any rule or regulation of any governmental authority, or any rule or regulation
of, or agreement of the Company with, any securities exchange or association
upon which the Company Series A Common Stock is listed or quoted.  The Company
shall in no event be obligated to take any affirmative action in order to cause
the exercise of the Option or the resulting delivery of the shares of Company
Series A Common Stock to comply with any such law, rule, regulation or
agreement.

     12. Notice.  Unless the Company notifies Grantee in writing of a change of
address, any notice or other communication to the Company with respect to this
Agreement shall be in writing and shall be delivered personally or sent by first
class mail, postage prepaid and addressed as follows

                   TCI Satellite Entertainment, Inc.
                   8085 South Chester, Suite 300
                   Englewood, Colorado 80112
                   Attention: General Counsel

Any notice or other communication by the Company to Grantee with respect to this
Agreement shall be in writing and shall be delivered personally, or shall be
sent by first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Determination Date, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any notice of exercise, shall be
effective when actually received.

     13. Governing Law.  This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.

     14. Construction.  References in this Agreement to "this Agreement" and the
words "herein," "hereof," "hereunder" and similar terms refer to this Agreement,
including all Exhibits, as a whole, unless the context otherwise requires.  The
headings of the paragraphs of this Agreement have been included for convenience
of reference only, are not to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof.  All decisions of the TCI
Committee and the Company Board, as applicable, upon questions regarding this
Agreement shall be conclusive.

                                       6
<PAGE>
 
     15. Duplicate Originals.  The Company and Grantee may sign any number of
copies of this Agreement.  Each signed copy shall be an original, but all of
them together represent the same agreement.

     16. Entire Agreement.  This Agreement is in satisfaction of and in lieu of
all prior discussions and agreements, oral or written, between or among TCI, the
Company and Grantee, or any of them with respect to the subject matter hereof.
Each of the Company and Grantee hereby declares and represents that no promise
or agreement not herein expressed has been made and that this Agreement contains
the entire agreement between and among the parties hereto with respect to the
Option and supersedes and makes null and void any prior agreements between or
among TCI, the Company and Grantee, or any of them, regarding the Option.

     17. Amendment.  This Agreement may be amended, modified or supplemented by
the Company, without the consent of the Grantee, (i) to cure any ambiguity or to
correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or (ii) to make such other changes
as the Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws.  Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.

     18. Definitions.  As used in this Agreement, the following terms have the
corresponding meanings:

         "Aggregate Option Price" means an amount equal to one percent (1%) of
TCI's Net Investment as of the first to occur of the date of the Distribution
and the date on which the Option first becomes exercisable, but excluding any
portion of TCI's Net Investment that as of such date is represented by a
promissory note or other evidence of indebtedness from the Company (or any of
its subsidiaries) to TCI (or any subsidiary of TCI).

         "Cause" has the meaning ascribed thereto in any employment agreement
between Grantee and TCI or any of its Subsidiaries, and in the absence of any
such employment agreement means insubordination, dishonesty, incompetence, moral
turpitude, other misconduct of any kind, or refusal to perform one's duties and
responsibilities for any reason other than illness or incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined conclusively by
the TCI Committee.

         "Company Series A Common Stock" means the Series A Common Stock, $1.00
par value per share, of the Company.

         "Company Series B Common Stock" means the Series B Common Stock, $1.00
par value per share, of the Company.

         "Determination Date" means February 1, 1996.

                                       7
<PAGE>
 
     "Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that (a) can be expected to result in death or (b) has lasted or can be expected
to last for a continuous period of not less than 12 months.

     "Distribution" means the proposed distribution by TCI, in a transaction
intended to be a tax-free spin-off, of all the issued and outstanding shares of
capital stock of the Company to the holders of shares of Tele-Communications,
Inc. Series A TCI Group Common Stock and Tele-Communications, Inc. Series B TCI
Group Common Stock.

     "Domestic Relations Order" means a domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.

     "Fair Market Value" of a share of Company Series A Common Stock or Company
Series B Common Stock on any day means the last sale price (or, if no last sale
price is reported, the average of the high bid and low asked prices) for a share
of such series on such day (or, if such day is not a trading day, on the next
preceding trading day) as reported on NASDAQ or, if not reported on NASDAQ, as
quoted by the National Quotation Bureau Incorporated, or if such series is
listed on an exchange, on the principal exchange on which such series is listed.
If for any day the Fair Market Value of a share of any Company Series A Common
Stock or Company Series B Common Stock is not determinable by any of the
foregoing means, then the Fair Market Value for such day shall be determined in
good faith by the Company Board on the basis of such quotations and other
considerations as the Company Board deems appropriate.

     "Good Reason" means the occurrence of any of the following prior to any
termination of employment by Grantee:

     (i) any reduction in Grantee's annual rate of salary;

     (ii) a failure by TCI to continue in effect any employee benefit plan in
 which Grantee was participating, or the taking of any action by TCI that would
 adversely affect Grantee's participation in, or materially reduce Grantee's
 benefits under, any such employee benefit plan, unless such failure or such
 taking of any action adversely affects the senior members of the corporate
 management of TCI generally; or

     (iii)  the assignment to Grantee of duties and responsibilities that are
 materially more oppressive or onerous than those attendant to Grantee's
 position on the Determination Date.

     "NASDAQ" means the Nasdaq Stock Market.

                                       8
<PAGE>
 
     "Option Price" means an amount per Option Share equal to the quotient of
(i) the Aggregate Option Price divided by (ii) the total number of Option Shares
on the date of the Distribution, immediately after giving effect thereto, as
such amount per Option Share may be adjusted from time to time after the
Distribution pursuant to paragraph 9 hereof.  Within five business days after
the date of the Distribution, the Company shall give Grantee written notice of
the Option Price as of the date of the Distribution, which notice shall be
conclusive absent manifest error.

     "Option Shares" means an aggregate number of shares of Company Series A
Common Stock equal to one percent (1%) of the total number of shares of Company
Series A Common Stock and Company Series B Common Stock issued and outstanding
on the date of the Distribution, immediately after giving effect thereto.
Within five business days after the date of the Distribution, the Company shall
give Grantee written notice of the aggregate number of the Option Shares as of
the date of the Distribution, which notice shall be conclusive absent manifest
error.

     "Other Options" means the options to purchase shares of Company Series A
Common Stock granted pursuant to those other Option Agreements dated as of the
date hereof between the Company and the grantees named therein, respectively.

     "Reorganization Agreement" means the Reorganization Agreement to be entered
into by TCI, TCIC, the Company and certain other subsidiaries of TCI in
connection with the Distribution to provide for, among other things, the
principal corporate transactions required to effect the Distribution, the
conditions thereto and certain provisions governing the relationship between the
Company and TCI with respect to and resulting from the Distribution.

     "Subsidiary" of TCI means any present or future subsidiary (as defined in
Section 424(f) of the Code) of TCI or any business entity in which TCI owns,
directly or indirectly, 50% or more of the voting, capital or profits interests.
An entity shall be deemed a subsidiary of TCI for purposes of this definition
only for such periods as the requisite ownership or control relationship is
maintained.

     "TCIC" means TCI Communications, Inc., a Delaware corporation.

     "TCI's Net Investment" means, as of any relevant date, the cumulative
amount invested by TCI and its predecessor (including their respective
subsidiaries other than the Company and its subsidiaries) in the Company, its
subsidiaries and the respective predecessors of the Company and its subsidiaries
prior to and including such date, less the aggregate amount of all dividends and
distributions made by the Company, its subsidiaries and the respective
predecessors of the Company and its subsidiaries to TCI and its predecessor
(including their respective subsidiaries other than the Company and its
subsidiaries) prior to and including such date.

                                       9
<PAGE>
 
     IN WITNESS WHEREOF, the Company and Grantee have caused this Agreement to
be duly executed and delivered as of the date first written above.



                                TCI SATELLITE ENTERTAINMENT, INC.



                                By: /s/ Gary S. Howard
                                --------------------------------
                                    Name: Gary S. Howard
                                    Title: President



                                ------------------------------------ 
                                          Larry E. Romrell

                                       10
<PAGE>
 
                                                          Exhibit A to Agreement
                                                   dated as of December __, 1996



                       TCI SATELLITE ENTERTAINMENT, INC.

                        Option to Purchase Common Stock


                          Designation of Beneficiary


     I, ___________________________________________ (the "Grantee"), hereby

declare that upon my death __________________________________________ (the
                              Name
"Beneficiary") of
                         
_____________________________________________________________________________,
       Street Address         City       State      Zip Code

who is my _________________________________________________, shall be entitled
              Relationship to Grantee

to the Option and all other rights accorded Grantee by the above-referenced
grant agreement (the "Agreement").

     It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death.  If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.

     All prior designations of beneficiary under the Agreement are hereby
revoked.  This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with Tele-Communications, Inc. and TCI Satellite
Entertainment, Inc., prior to Grantee's death.



---------------------------------      -----------------------------------------
        Date                              Grantee