Options Types

Description: Options Trading, Options Type, Exchange, Listed Options, Call Options, OTC

There are three main types of options in the financial world: listed options, unlisted options and employee stock options.

Listed options

Listed Options are Exchange traded options. From the name of these options you may see that these options are listed on the Exchange and they could be bought and sold on the Exchange. The listed options are the most popular in the world of traders and in majority of cases are used by speculators to profit in volatile market. Listed options have standardized contracts, and are settled through a clearing house.

Exchange traded options include:

• stock options;
• index (equity) options;
• options on futures contracts;
• commodity options;
• interest rate options and bond options.

Unlisted Options

Unlisted options also called "dealer options" and over-the-counter options (OTC options) are not listed on the exchange and cannot be bought and sold by a retailed trader. These options are traded between two private parties. Contrary to the listed options, the OTC options are not standardized, their terms are unrestricted and may be set to meet any business need of the two parties participating in the transaction.

OTC Options include:

• interest rate options;
• currency cross rate options;
• swaptions or options on swaps.

Employee stock options

Employee stock options are the call options that are issued by a company to its employees as non-cash compensation on the company common stocks. As a rule these types of options are offered to the company's management, yet they could be offered to other employees as well as to contractors: suppliers, consultants, lawyers and promoters, etc.

If the stock raises in the price, the employee receives direct financial benefit. The employee stock options are used (especially by the businesses that are not yet profitable) to make employee interested in working and behaving in the way that would boost the company's stock price.

There are two forms of the employee stock option in the U.S:

• Incentive stock options (ISOs)
• Non-qualified stock options (NQSOs or NSOs)

 

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