diff --git a/extract/parameter.go b/extract/parameter.go
index bf66319..3b5f1d0 100644
--- a/extract/parameter.go
+++ b/extract/parameter.go
@@ -147,9 +147,6 @@ func ParameterFromBlock(block *terraform.Block) (*types.Parameter, hcl.Diagnosti
 	}
 
 	usageDiags := ParameterUsageDiagnostics(p)
-	if usageDiags.HasErrors() {
-		p.FormType = provider.ParameterFormTypeError
-	}
 	diags = diags.Extend(usageDiags)
 
 	// Diagnostics are scoped to the parameter
diff --git a/preview_test.go b/preview_test.go
index ec7ec6a..7fb2389 100644
--- a/preview_test.go
+++ b/preview_test.go
@@ -457,6 +457,17 @@ func Test_Extract(t *testing.T) {
 					optNames("GoLand 2024.3", "IntelliJ IDEA Ultimate 2024.3", "PyCharm Professional 2024.3"),
 			},
 		},
+		{
+			name:        "unknownoption",
+			dir:         "unknownoption",
+			expTags:     map[string]string{},
+			input:       preview.Input{},
+			unknownTags: []string{},
+			params: map[string]assertParam{
+				"unknown": apWithDiags().
+					errorDiagnostics("The set of options cannot be resolved"),
+			},
+		},
 	} {
 		t.Run(tc.name, func(t *testing.T) {
 			t.Parallel()
diff --git a/testdata/unknownoption/main.tf b/testdata/unknownoption/main.tf
new file mode 100644
index 0000000..c1943e6
--- /dev/null
+++ b/testdata/unknownoption/main.tf
@@ -0,0 +1,37 @@
+# main.tf
+
+terraform {
+  required_providers {
+    coder = {
+      source = "coder/coder"
+      version = "2.4.0-pre0"
+    }
+    docker = {
+      source  = "kreuzwerker/docker"
+      version = "3.0.2"
+    }
+  }
+}
+
+data "coder_parameter" "unknown" {
+  name = "unknown"
+  display_name = "Unknown Option Example"
+  type        = "string"
+  default = "foo"
+
+  option {
+    name = "Ubuntu"
+    value = data.docker_registry_image.ubuntu.sha256_digest
+  }
+
+  option {
+    name  = "foo"
+    value = "foo"
+  }
+}
+
+data "docker_registry_image" "ubuntu" {
+  name = "ubuntu:24.04"
+  // sha256_digest
+}
+