Financial options: Stock exchange traditional options
Certain stock exchange members are permitted to write options known as ‘traditional options’. Stock Exchange traditional options also fall within the definition of financial options.
The Exchange uses a number of distinctive terms to describe the machinery for granting the option. The purchaser or grantee of the option is said to give for the option and is called `the giver’. The grantor or seller of the option is said to take for the option and is called `the taker’. The premium paid by the grantee is the option rate or option money. The price at which the option can be exercised is called `the striking price’.
Traditional options are subject to the rules of the Exchange. The option is created by a market maker on the instructions of the broker. Options are available on any share dealt in on the Exchange and, in theory at least, on any stock dealt in on any exchange in the world. The striking price is agreed between the broker and the market maker at the time the option is granted.
There is no market in the options themselves. The purchaser, or giver, can either exercise the option or abandon it. They cannot take a profit by making a closing sale as they can with traded options, see CG55525.
See CG55582 for a comparison of traditional and traded options.