Posts Tagged Options Trading
Stock Options Trading
Posted by ilana in stock options trading on August 11th, 2009
Stock represents what a company is worth were they to sell off everything they own i.e. stock is their assets and their profits. It also helps determine a company’s value in the market place.
A stock option is when a buyer purchases either a call or a put option in the stock of a selected company. For example, Buyer A may believe that the performance of Company B is improving and may therefore decide to purchase a call option in the stocks of Company B. If the option expires above its strike price i.e. if the price of Company B’s stocks have risen, then Buyer A will profit from buying the option at its earlier lower price.
There are different types of options available, stock options being just one of them. Buyers may also trade commodity options, index options and currency (or forex) options. See anyoption™ for a list of stocks available for online investment.
Since a stock option is a type of binary option, there are 2 possible outcomes possible, all which are known at the onset of the contract.
The possible outcomes are: the option expires in-the-money and the buyer receives their investment amount back plus the return rate (with anyoption™ it’s between 61%-71%); or the option expires out-of-the-money and the owner receives nothing (however, on the anyoption™ platform, an owner receives 15% back if his option expires out-of-the-money). If the option expires at exactly the same level as the strike price and the investment is paid back in full to the buyer.
A main advantage of stock option trading online versus traditional stock trading, is that with a stock option, the payout is independent of the magnitude by which the price of the stock moves. For example, a buyer may purchase a call option for ?100, expiring at the end of the hour, for a return of 70% on the stock of Company B, currently at 165.896 points.
If at the end of the day, the stock ends at 165.897 then the option has expired in-the-money and the owner will receive ?170. He will receive the full 70% payout, even though the stock only moved 0.001 points. This demonstrates the simplicity of trading stock options.
Forex Options Trading
Posted by ilana in Forex Options Trading on August 11th, 2009
Forex (fx) is an acronym of Foreign Exchange. Forex Trading is when currencies from different countries are traded against each other.
In traditional forex trading (or currency trading) actual currencies are bought and sold. However, in forex options trading, the buyer purchases the option not the currency i.e. they are entering into a contract to buy currencies at a fixed price within a pre-determined time frame.
A forex option is a type of binary option which means both outcomes are realized when the contract is created. If the potential gain and the potential loss from the trade are known from the onset, then it makes the trade totally transparent.
In a binary option trade there are only two possible outcomes: or the option expires in-the-money and the buyer receives a fixed amount of cash; or the option expires out-of-the-money and the buyer receives nothing. However, if forex option trading is carried out on the anyoption™ platform, an option expires out-of-the-money, then a buyer receives a 15% back of his initial online investment.
In forex option trading the underlying asset being traded is a currency pair e.g. EUR/GBP, AUD/USD, USD/JPY, GBP/JPY plus many more.
When placing an online investment, the result is independent of the magnitude by which the price change of the currencies relative to one another. For example, a buyer may purchase a call option for ?100 on USD/JPY currently at 97.1563, with an expiry time of the end of the week, for a return of 70%.
If at the end of the week, the currency pair ends at 97.1564 then the option has expired in-the-money and the owner will receive ?170. Even though the stock has only moved 0.001 points, they will still receive the full 70% payout. This makes forex option trading an attractive method of trading for many new investors.
Once an exclusive industry, forex option trading is now available to everyone. Since all risks are known from the onset and due to the comfort of online trading, many buyers are turning to online investments, specifically option trading, to purchase their trades.
Options Trading
Posted by ilana in Options Trading on August 11th, 2009
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.
Options Trading: Binary Options
Posted by ilana in Options Trading on June 23rd, 2009
A binary option, also referred to as a digital option or a fixed return option, is an option in which payout is determined at the onset of the contract. It pays a fixed amount of cash if the option expires in-the-money, independent of the magnitude by which the price of the underlying asset moves. anyoption™ offers you a 65%-71% payout when the option expires in-the-money, and a 15% return if the option expires out-of-the-money. The option cannot be sold before its expiration.
An option that provides the holder with a profit when the underlying asset increases in price compared with the level it was purchased at. In the event that the option expires exactly at the same price, the full original investment amount will be returned to the investor.
An option that provides the holder with a profit when the underlying asset depreciates relative to the purchase level. In the event that the option expires at exactly the same price, the full original investment amount will be returned to the investor.
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