Vanilla Option

DEFINITION of 'Vanilla Option'

A financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price, within a given time frame. A vanilla option is a normal call or put option that has standardized terms and no special or unusual features. It is generally traded on an exchange such as the Chicago Board Options Exchange.

BREAKING DOWN 'Vanilla Option'

Individual and institutional investors can take advantage of the versatility of options to design an investment that best meets their need to hedge or speculate on the price movement of an asset. If a vanilla option is not the right fit, they can explore exotic options such as barrier options, Asian options and digital options. Exotic options have more complex features and are generally traded over the counter.

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RELATED FAQS
  1. What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options ... Read Full Answer >>
  2. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  4. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  5. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
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    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
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