Service-oriented Architecture (SOA) for sensor network applications aims at providing composable sensor network services supporting functionality within a specific application domain together with tools for service composition, so more complex functionalities can be composed of component services. In a distributed environment, such a scheme works by having a given component service choose other components that provide the data that it needs to perform its service. In this paper, we propose to use real options theory for selecting component services. Real options are designed to reduce the risk associated with an investment by delaying the investment decision for a certain period of time or by allowing for the substitutions of initial investment. Thus, they enhance managerial flexibility and add to the overall value of a project but at the same time they incur certain costs. It is natural to think about activated services as investments, and we apply the switch options subset of the real options methodology to manage the risks of high cost that may result from the low reliability of sensors and sensor networks. Furthermore we compare our approach with several service selection methods and show the advantage of the option-based methodology. © 2011 IEEE.