Vanilla options
How to trade vanilla options
Last updated
How to trade vanilla options
Last updated
Vanilla options, referred to as 'classic' in the selection menu are also called American options. OptionBlitz vanilla options are cash settled which means you have the right, but not the obligation, to settle the option at any time during the trade term for the difference between the strike price and the spot price.
With vanilla options you pay a premium and a commission which is an initial outlay upfront.
And at any time before and at maturity, a trader can exercise the option with right to get payoff:
- For Call: Payoff = QTY . max(S_t-S_0,0)
- For Put: Payoff = QTY . max(S_0-S_t,0)
Your profit is your Payoff - Outlay. Outlay = premium+commission
Because the exercise price could be anything, vanilla options offer unlimited upside.
If you do not settle the option early, it will automatically settle at expiration. This could end up in the money or out of the money depending on the price.
The important thing to know is that your downside is limited to your initial outlay (premium+commission). So your risk is limited. In contrast with margined products like perpetuals where you can lose your entire margin if you get liquidated due to an unfavourable price.
Vanilla options are available in maturities from 10 minutes to 24 hours so premiums are much lower than longer dated trades. This means you can make multiple trades in a single day depending on market movements.
Continue to learn about our vanilla option specifications per asset.
