Vanilla options can be a very diverse way of trading. The main elements of a Vanilla Option is a Call or Put, the Strike Price and the Expiry. Vanilla options are the simplest member of the option family.
A bought Vanilla Option gives the buyer the right, but not the obligation, to buy (known as a ‘Call Option’) or sell (known as a ‘Put Option’) an underlying financial instrument at a predefined rate (known as the ‘Strike’) at a pre-defined date (known as the ‘Expiry’). When buying a Vanilla Option, the buyer pays the Premium for the abovementioned right on opening and this is collected from the account balance. A sold Vanilla Option gives the seller the obligation and the buyer the right to buy (known as a ‘Call Option’) or sell (known as a ‘Put Option’) an underlying financial instrument at a predefined rate (known as the ‘Strike’) at a pre-defined date (known as the ‘Expiry’).
When selling a Vanilla Option, the seller receives the Premium for the abovementioned obligation on opening and this is credited in the account balance. At the same time an Amount to Risk is collected, which acts as a Stop Loss and limits the maximum loss.
Due to their diversity vanilla options are used by both individuals and companies – it allows them both the forecast the movement of instruments. Of course to be able to understand the movement of instruments and markets one of your biggest assets will be knowledge – and you can learn everything you need to know through easyMarkets Learn Centre. Knowing what macroeconomic events affect the instruments you trade is imperative when trading options, since you will be attempting to calculate what the instrument’s price will be when the option reaches maturity.
The ability to set your strike price, maturity and type of instrument you would like to trade - makes vanilla options a great and diverse choice for both new and experienced traders. Not only do vanilla options offer you a great way to manage your risk but with the different maturity levels and types of instruments, it also allows you to fit it into different types of trading. Trade more active instruments for a shorter amount of time or more stable ones for longer.
No matter what type of trading you chose with vanilla options, easyMarkets industry leading customer support is available to help you no matter what your level of trading expertise.
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