Posts Tagged trading options online
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.
Online Options Trading
Posted by ilana in Options Trading on August 10th, 2009
Online trading options is when an investor literally – trades options online. An option is a contract, where a buyer has the right, but not the obligation, to buy or sell an underlying asset at a set price (the strike price) within a specified time frame. When a buyer enters into this contract then he has begun trading in the underlying asset. He may choose to trade online – reaping many benefits will be explained below.
In option trading, a buyer can select between different underlying assets for his online investment. He may trade in currencies (e.g. USD/JPY) known as forex option trading, commodities (e.g. Gold) known as commodity option trading, stocks (e.g. Google shares) known as stock option trading and indices (e.g. FTSE 100) known as index option trading. The anyoption™ platform offers over 50 possible assets to invest in. The buyer must then select his preferred expiry time: the end of the hour, day, week or month.
Purchasing an online investment works like this: a buyer decides whether he thinks that by his selected expiry time, the chosen asset will be above or below the strike price. If he thinks that the asset will settle above the strike price then he purchases a call option. If he thinks that the asset will settle below the strike price then he purchases a put option. (see article ‘option trading’ for more information). This can all be carried at out at the click of a button by trading online.
A trade is successful depending on whether the contract expires above or below its strike price. Using the anyoption™ platform, a trader receives a 65%-71% payout when the option expires in-the-money, and a 15% payback if the option expires out-of-the-money.
For example, Investor A places a ?100 online investment on the price of Gold, currently sitting at 955.10 with a return rate of 70%. He selects a call option with an end of the day expiry. If at the end of the day, the price of Gold is 955.11 or above, then Investor A receives a payout of ?170. If at the end of the day, the price of Gold is 955.09 or below, then he receives a ?15 payback. This is a typical online binary option trade and its formula is simple to follow for other assets.
Online option trading is a growing preferred method of investment for many investors. There are several reasons supporting this:
- Option trading is a type of binary option – this means that an option is being trading, rather than the asset itself. So, the payout is determined once the contract has been created. There are only two possible outcomes in binary option trading: or the option expires in-the-money and the owner receives a fixed amount of cash; or the option expires out-of-the-money and the owner receives nothing. Or in the case of trading on the anyoption™ platform, they receive a 15% payback of their initial investment if the option expires out-of-the-money.
- Options are easier to trade since the buyer only needs an idea of which direction the asset will move, up or down, rather than predicting the magnitude of the change. This makes it easier for the buyer to receive a payout.
- Option trading is extremely flexible, due to the wide choice of underlying assets and expiry times available.
- The online trading risks are much lower, since the buyer controls how much he invests and the most he could lose is 85% of his investment amount. Once the investment has been made, regardless of the magnitude of the price change, the investor will not be called upon for more money.
- Investments are easily carried out online using the anyoption™ platform, so a trader need not use a broker and can trade from most geographical locations
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