An option contract arranged on the trading floor and traded regularly. The opposite of exotic option.
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An American option or European option that is not traded on an exchange. That is, a conventional option has no special features that would exclude it from an exchange but, nonetheless, is privately negotiated and agreed between the parties. A conventional option is illiquid because there is little secondary market for it. It has become a rare investment vehicle, as trading options on exchanges have become more common.
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A put or call option contract negotiated independently of the organized option exchanges. Before 1973 and the opening of the Chicago Board Option Exchange, all options originated through private negotiations. The disadvantage of conventional options is their lack of liquidity due to a limited secondary market. See also FLEX option.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.