Yes, Option would disable Basic on boot. The first Ataris (400 and 800) came with a basic module that you had to put in and then start the computer to use Basic - or likewise Assembler. The module would then use certain parts of the precious 64 KB Ram - actually, much less because the OS in ROM would write itself into RAM on startup and take about 20KB away. So a program or game had about 40 KB space to use. Basic would take some more away. Which wasn‘t a problem on the 800, you would either plug the module in and use Basic but you wouldn‘t if you wanted to load a game. But with the XL, you needed a way to disable the automatic Basic load at boot time, or many games could not use all of the memory they needed. Hence, the Option-option at startup.

At least I remember it this way, but I only had an XL, not the older ones, and now I remember that the 800 had only 48KB of RAM, so it was probably more complicated than that!