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Vanilla Option

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A vanilla option is a basic option with no special attributes or features. A vanilla option can be either a call or a put. A call is a vanilla option that gives an investor the right but not the obligation to purchase a security at a pre-determined price (i.e. strike price) within a pre-specified time period. A put is a vanilla option that gives an investor the right but not the obligation to sell a security at a pre-determined price within a pre-specified time period. A vanilla option that can be exercised at anytime on or before the expiration date is called an American option. A vanilla option that can only be exercised on the expiration date is called a European option. Sometimes a vanilla option is combined with another vanilla option to create a complex strategy like a horizontal or vertical spread. Vanilla options are standardized and tend to trade on options exchanges. In contrast, exotic options are customized and trade on the OTC (i.e. over the counter) market. A vanilla option is also referred to as a plain vanilla option.



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