Options Trading


Introduction to Options Trading

Options trading, also known as option trading is an exchange of contracts between two sides the buyer and the seller. The option buyer have the right (but not obligated) to buy or sell an underlying asset at a specific price on or before a certain date. Options trading can be done online on various assets:
Stock Options, Forex Options, Commodity Options, Indices Options.

As options trading is most commonly conducted through online Options Brokers.

The majority of the options trading volume is conducted in major options exchanges: The Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) and NYSE Arca in New York City, and the Chicago Board Options Exchange (CBOE), and the International Securities Exchange (ISE) and Boston Options Exchange (BOX).

The option buyer (option holder) can exercise his option product within agreed time interval but is not obliged to do it. On the other hand, The option seller (option writer) is obligated to agree to either of the buyer’s decisions. An obvious advantage of option trading is that money can be made without large investments of capital. You can look for a more detailed Option Trading Definition in the respective article by clicking on the link.

1.Leverage
Options give you true leveraging strength. A trader can buy an option that will that will emulate a stock position and with saving of cash.
For example, to buy 500 share of an 10$ stock, you should pay 5000$.
If you purchased three 10$ Call Options(each contract represent 100 shares) the total investment sum will be 3000$ (3 contracts x 100 shares per contract x 10$ option price). This is just an example of using less cash for leverage your trading by options, options strategies require a deep understanding and planning.

2. Hedging

Options can used either be used for high risk, high return speculation, but Options Trading can be used to limit your risk exposure and hedge your portfolio. Being a scalable trading tool options can fit any investor.
Options can be safer for investors as they require less cash investment than stocks and can help you hedge your portfolio.

Moreover,Fixed-Return-Options (Also known as FRO’s) such as Binary Options are ideal fit for investors that would like buy a constructed hedging product with limited risk and pre-defined reward.

3.Potential higher payout
Even with smaller investment amount, If you trade option then the revenue on you investment should be higher, You can either buy In-the-money options or out-the-money options, by trading out-of-the-money options you can actually get an extremely high potential returns on sharp price movements.

4. flexibility

The most significant advantage of options, is the flexibility it gives to the trader.
By mastering Options Strategies, an investor can tailor an investment product that fits exactly to his investment needs.

Conclusion

After reviewing the major advantages of options trading, it’s more clear to understand why options trading is gaining reputation among traders now days.

Online Options brokers are now offering a great trading infrastructure with sophisticated platform and low commissions bringing this elegant trading tool to mass market usage.

Binary options – also known as digital options or fixed return options are sort of a hybrid between traditional options and fixed-return financial instruments. Digital options are simple, and they are ideal for the trader who wants the potential for significant, short-term gains with a strictly limited risk. This means the investor who trade binary options can know immediately and exactly how much a trade will yield or lose. A binary option allows you to form an opinion on whether a specific outcome will or will not occur. They can only have one of two possible outcomes. Unlike a spread bet a digital option does not require margin, no stops and you know the exact maximum risk and maximum profit. Binary Options trading allow you to take a simple “Yes or No” approach ( or Above/Below) on whether an outcome will occur. For example, will the GOOGLE close up on the day at the expiry time? If “Yes,” the Binary option settles "in the money" If “No,” the Binary option settles "out of the money".

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