Vanilla options refer to the plain run of the mill option where you have a standard expiry and standard strike price. Vanilla options are often referred to as “Plain Vanilla options” which means that there are no exotic or special features associated with the options open in trading to beginners. When one means exotic or special features they are referring to standardized exchange traded options which do not yet have any fancy advanced features.
Over a decade back, most of the exchange used to trade in plain vanilla options. Most stock and traders often trade in standardized stock options even today. With the invention and popularization of exotic options like Binary options, Asian options and Barrier options available to the beginners which is easy to bet on and results in gain rather than loss, most traders are not interested in plain vanilla options of trading anymore.
In a way “Plain vanilla options” is an English slang word for simple and boring. For example if you are trading in call options or put options on stocks and index features or ETFs in the US markets then you are said to be trading in vanilla options. If in case there are any stocks that are listed as exotic options along with the vanilla options then you can open up a chain of options on the optional stock but even then you would still be dealing with plain vanilla options in the investment sector.
Characteristic of Vanilla options
1. Vanilla options are mostly American style options or European style of options in the trading market
2. Vanilla options usually have a multiple of stock prices listed across various expiration months
3. Mostly vanilla options are either call options or put options. They cannot be in both ways. Thus the profit results only in one direction.
4. Vanilla options can be used for trading the underlying asset that has been specified at a particular strike price in the investment market.
5. One has the freedom to be able to buy Vanilla options as well as sell them off anytime before the expiration of the stock.
Usually, like a decade before most of the people who were beginners in the stock market and wanted to be able to learn the trade would start off with vanilla trading. However along with time the latest inventions became so popular. Even the strategies for other options for stock trading were so easy to adapt to and help a person to gain money in the stock exchange around the world that Vanilla options started becoming rather boring and drab to invest in. After all what is the thrill that one gets when there is no predicament in the game at all. Binary options, Asian options ect have brought in more spice to the stock exchange and hence allow most users to be able to profit in larger amounts as compared to any other kind of options for beginners in the trade. There are more complex exotic options that exist but as of now the future of vanilla options is rather weak.