There is an upside for a club. A player may be reluctant to sign on with a 2 year contract. Giving them the option means you sign them up for the year, and maybe even 2.
It's obviously not an ideal scenario if you want to sign someone up for 2 years, but its quite normal.
Whether or not we should have signed him for 2 years is a different story. I always assumed it was a club option, as the scenario where we sign him up for a year to see how he goes then exercise the option if he was any good, seemed more plausible
But I'd take a guess that a player option is more common than a club option.