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A traditional option is a financial instrument that grants the option holder the right, but not the obligation, to exercise the option and buy (i.e. a call option) or sell (i.e. a put option) an asset at an agreed ‘strike� price within a prescribed period.

Similar to traded options (see STSM112080), traditional options over underlying equity securities can be initially listed on a stock exchange with traditional option prices published in the same way as underlying company share trading.

But, unlike traded options, once a traditional option contract is issued, the rights to a traditional option are non-transferable and cannot therefore be secondary traded on an exchange or, alternatively outside the marketplace between the option holder and a third party purchaser (commonly known as an Over the Counter (OTC) transaction).

The majority of traditional options are bespoke or tailored to suit agreements between a single seller and a single buyer, and so are different from traded options that have standardised conditions.

A traditional option underlying an equity security is therefore usually written as a result of a private arrangement agreed between the issuer and the ultimate holder of the option.

Furthermore, a traditional option underlying an equity security can only, unlike traded options, be exercised on specific dates before expiry of the option.

See STSM112010 for the meaning of ‘strike� price

See STSM112050 for the meaning of option exercise

See STSM112100 for the meaning of Over the Counter (OTC)