Options trading is the process of buying and selling options. They are contracts that give the owner the right, not the obligation. To buy or sell an underlying asset at a specified price if he moves beyond that price within a specific time frame.
For example, let’s say you expect the price of U.S. crude oil to rise from $50 to $60 a barrel over the next few weeks. So you decide to buy a call option that gives you the right to buy the market at $55 per barrel at any time during the next month. The price you pay to buy the option is known as the premium value.
If U.S. crude oil rises above $55 (the strike price) before your option expires. You will be able to buy the market at the discount price. But if the market remains below $55. You don’t need to exercise your right, and you can let the option end. In this case, all you will lose is the option premium (bonus amount) you paid to open your position.
What are the Purchase Options?
Buying a call option gives you the right, without obligation, to buy an underlying market at a specific price – called a strike price – on or before a particular date. The higher the market value, the more profits you will make.
When you trade options with us in the UAE. You will use CFDs to speculate on the value of the option premium – which will change as the prospect’s likelihood of becoming profitable at expiry changes. This way, trading options may be essential to a broader strategy.
Buying Call Options
You can also sell call options. However, as a call option seller, you will have to commit to selling the market at the strike price if the buyer executes the option at the expiry date.
Buying Put Options
Buying a put option gives you the right, without obligation, to sell a market at the execution price on or before a specific date. The lower the market value, the more profits you will make.
You can also sell put options. However, as a sell option seller, you will have to commit to buying the market at the strike price if the buyer exercises their choice at the expiry date.
Options traders in the UAE can use CFDs to speculate on options prices – rather than trading them directly. However, you will never deliver or receive the underlying asset since CFDs are settled in cash at closing.
What is Leverage in Options Trading?
Options are leveraged products such as CFDs; they allow you to speculate on market movements without owning the underlying asset. However, your profits and losses may be amplified if you sell options.
For traders looking for greater leverage, options trading is an attractive choice. By choosing your trading volume and execution price. You will have more control over your influence compared to trading in the spot markets.
How Can You Hedge Through Options Trading?
Hedging through options allows traders to limit potential losses to other positions that may be open to them.
Let’s say you own stock in a company. But you’re worried about its price falling shortly. You can buy a put option with your stock at an execution price close to its current level.
If your share price becomes lower than the strike price at the expiry date of your option, your losses will be limited to the option’s gains. If your share price rises, you will only lose the cost of buying the option at the start.
Holders and Writers: The person who buys the option is called the holder, while the seller is called the writer. In Call Options, the holder has the right to purchase the underlying market from the author. In put options. The holder has the right to sell the underlying need to the writer.
The value of the option premium or premium: is the fee paid by the holder to the writer for the option. When you trade CFDs with us. You will have to pay a margin that works similarly to a bonus.
Strike price: The price at which the holder can buy call options or put options on the underlying market when the option expires.
Equal Option: When the underlying market price is equal to the strike price or very close to being similar to the strike price. The option is referred to as equivalent.
Break-even point: When the underlying market price is equal to the execution price plus the bonus value (in the call option) or the execution price minus the bonus value (in a put option). Your trade is at its breakeven point. It means that it will not lead to a profit or loss.
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