Posts Tagged stock options
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.
Binary Options Trading
Posted by ilana in binary options trading on August 11th, 2009
A binary option is a fixed return option since only 2 outcomes are possible, both of which are known at the onset of the contract – hence all risks can be fully taken into account.
A binary option is a contract which gives the buyer (known as the owner) the right, but not the obligation, to buy or sell an underlying asset at a fixed price within a specified time frame.
The underlying assets being traded could be currency pairs (e.g. USD/GBP), commodities (e.g. Silver, Copper), stocks (e.g. Apple, Vodaphone) or indices (e.g. Dow Jones, Nasdaq). The strike price is the industry name for the fixed price at which the asset is bought.
When trading binary options, the buyer must decide whether he thinks the chosen underlying asset will hit the strike price by the selected expiry time. The expiry time can be at the end of the nearest hour, or the end of the day, end of the week or end of the month.
There are 3 aspects involved in placing a binary option trade: selection of the asset, selection of the expiry time/date and selection of the direction the asset will move in.
If the buyer believes that at this chosen expiry time, his binary option trade will be higher than its current price, then he purchases a call option. If the buyer believes that at this chosen expiry time, his binary option trade will be lower than its current price, then he purchases a put option.
The returns from binary option trades are known once the contract is made. If an option expires in-the-money then a buyer will receive between 65-71% profit on the investment amount. If an option expires out-of-the-money then with anyoption™, the buyer will receive a 15% payback on his initial investment. The controlled risks with binary option trading makes it a preferred method of trading for many investors because the potential gain or loss is known from the offset, so all possible situations can be planned and accounted for.
With the development of the internet, binary option trading has expanded to online platforms. This means that a buyer can purchase binary options from the comfort of his own home, without the need for a broker. Using the anyoption™ platform, a buyer can follow the market trend of an asset and see all his past and current investments in a clear fashion.
In this respect, trading binary options online is extremely flexible. The asset, expiry time and predicted asset direction can be controlled by the owner of the investment who can tailor make the option to suit his needs and knowledge. The only unknown factor is whether the asset will expire above or below its strike price.
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