Sipp will earn $500,000 this season if he remains in the majors and $100,000 in the minors. There is $200,000 in performance bonuses in the major league deal. He will earn an additional $25,000 each for appearing in 35, 40, 45 and 50 games and $50,000 each for 55 and 60 games.
The 30-year-old Sipp was pitching for San Diego's Triple-A affiliate before requesting his release on Thursday. Sipp has a 4.30 ERA with 21 strikeouts in 11 games in Triple-A this season. He was 3-2 with a 4.78 ERA in 56 appearances in the majors last season with Arizona.
Houston optioned right-hander Paul Clemens to Triple-A Oklahoma City and transferred right-hander Jesse Crain to the 60-day disabled list.
AP Sports Writer Ron Blum contributed to this report.