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The 30-year-old Olivo could have voided the option and forfeited the buyout, but he chose to stay with the Royals. The sides also agreed to a mutual option for 2010.
Showing a strong arm behind the plate, Olivo threw out a career-best 38.7 percent of attempted base stealers this season - fourth-best among catchers with a minimum 20 stolen-base attempts.
In other moves, the Royals purchased the contract of catcher Brayan Pena and sent catcher Matt Tupman and pitcher Yasuhiko Yabuta outright to Triple-A Omaha.
Yabuta had the right to opt for free agency.
The 26-year-old Pena was claimed off waivers from Atlanta on May 30 and hit .303 with six homers, 17 doubles and 31 RBIs for Omaha.
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