The primary types of financial options

The primary types of financial options are:

  • Exchange traded options (also called “listed options”) are a class of exchange traded derivatives. Exchange traded options have standardized contracts, and are settled through a clearing house with fulfillment guaranteed by the credit of the exchange. Since the contracts are standardized, accurate pricing models are often available. Exchange traded options include:

1. stock options,
2. commodity options,
3. bond options and other interest rate options
4. index (equity) options, and
5. options on futures contracts

  • Over-the-counter options (OTC options, also called “dealer options”) are traded between two private parties, and are not listed on an exchange. The terms of an OTC option are unrestricted and may be individually tailored to meet any business need. In general, at least one of the counterparties to an OTC option is a well-capitalized institution. Option types commonly traded over the counter include:

1. interest rate options
2. currency cross rate options, and
3. options on swaps or swaptions.

  • Employee stock options are issued by a company to its employees as compensation.






Leave a Reply