An option is a contract which gives the buyer (also known as the owner) the right, but not the obligation, to buy or sell an underlying asset, at a set price within a specified time frame.
The underlying asset could be a currency (such as GBP/EUR), stock (such as Microsoft shares), commodity (such as Oil) and index (such as the Dow Jones). Basically, it is the item which is being traded. This fixed price is the price at which an asset is bought at – in options trading it is known as the strike price.
The time frame is known as the expiry time and the investor can choose one of four times: the end of the hour, day, week or month. On the anyoption™ platform, there is also the opportunity to trade over the weekend when most of the markets are closed. By using the One Touch option, traders receive a payout if their chosen underlying asset touches a predetermined barrier. See One Touch for more information.
In option trading, there are two types of option strategies: a Call option and a Put option.
A call option, is purchased when the buyer believes that the chosen asset will expire above the strike price at the specified expiry time. So, the option is purchased at the asset’s original lower price in the hope that the option will expire in-the-money.
A put option, is purchased when the buyer believes that the chosen asset will expire below the strike price at the specified expiry time. So, the option is purchased at the asset’s original higher price. If this happens, then the option will expire in-the-money.
Since option trading only involves purchasing a contract and not actually buying the asset itself, the magnitude asset price change is therefore irrelevant. It must only move by a small margin for the investment to be profitable. Hence, option trading is extremely popular amongst many traders. The potential risk is known, since the maximum amount that can be lost is the initial outlay of the online investment. Also, the knowledge that a buyer trading options must have of the market, in comparison to a conventional market trader, is much less, so the opportunity for trading is opened up to a wider audience. So the risks of option trading make it an attractive form of investment for many people.
Additionally, currency trading was only accessible to wealthier customers who could afford to trade with large quantities of currencies. However, due to the introduction of online trading platforms, such as anyoption™, profiting from currency option trading, even for small investors, is possible and achievable. Online investments also enables people to invest whilst in the comfort of their own home. They can trade from wherever they are geographically, without the need for a broker.
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