A guide to traded options and trading options on LTOM, traded options strategies, traded options brokers, FTSE Options on LTOM market, shorting stock market using puts, traded options explained, buy sell indicators trading on LTOM, strategies for dealing in traded options. TD Direct Investing guides help new investors start stock market trading. Collect CFD trade dividends with a Plus online trading account. Interactive Investor set to acquire TD Direct Investing. Stockbrokers Technical Analysis New Share Issues CFD Trading What are CFDs? Stock Brokers Forex Brokers Fund Managers. Explore stock trading, CFD and Forex markets with a demo trading account workable via mobile app, with leading trading tools. A uk stock market forum. User postings for all uk FTSE and AIM companies with postings the arranged in a bulletin board system. A traded option is a tradeable financial instrument that grants its owner the right, but not the obligation, to buy or sell an asset at fixed price within a prescribed period. Traders utilise two types of traded option ; Calls and Puts. Options are traded in contracts, or lots, each representing 1, shares of the underlying security. If, therefore, one is attempting to establish the cost of an individual option contract, one takes the price normally quoted in pence and multiplies it by one thousand. Traders should note that companies do occasionally reorganise their capital structure, through rights issues, stock splits etc. Each stock option has a predetermined expiry date, and the next expiry date will be three months after that etc. At any given moment any equity option will have contracts with three different expiry dates, the furthest one away being nine months. An option will have one of the following expiry cycles:. It is important to know that when one contract expires another is created: Thus, when a February contract expires a new one for November is created. This is the price at which the holder of the option has the right to buy or sell the underlying share and is fixed by LIFFE according to the following scale. Strike prices above p rise in increments of 50p, and above 1,p the increments rise to p. Should an option holder wish to exercise it, this may be done on any day up to and including the expiry day. Traders wishing to access option prices now have several sources. On UK cable and satellite television, Sky provides some prices with a minute delay page The LIFFE website offers the same service, but shows far more strike prices. Ceefax no longer shows option prices. Prices are also published in the Daily Telegraph and, of course, the Financial Times. Typically, option prices will be displayed in the following format. In real trading you will be quoted two prices, the bid and the offer. The bid is the price at which you can sell, and the offer is the price that you will have to pay. For example, the bid-offer spread on the XYZ July call might be expressed as In-the-money or out-of-the-money If an option strike price is near the current share price it is said to be at-the-money. If the options price is much higher than the current share price in the case of calls or much lower in the case of puts it is said to be out-of-the-money. If, in the case of a call, the strike price is much lower than the share price and much higher in the case of a put then the option is referred to as being in the money. How are option prices decided? There are several factors that have a determining influence on the price of an option, chiefly:. The price of the underlying shares is crucial as it determines whether the option has any intrinsic value. For example, if the option strike price is p and the share price is p, the option is said to have intrinsic value of 50p. If we find that the option is priced at 75p we would say that the option, in addition to the 50p of intrinsic value, also has 25p of time value. The longer the amount of time left to expiry the greater the amount of time value contained within the option. This is because there is greater opportunity for the share price to move. In cases where the strike price of the option is higher than the current share price, then the whole amount of the option premium is time value. How volatile the underlying shares are options have a big impact on the value of an option — trade more volatile the share, the more expensive the option. The reason for this is that if a share price is likely to move around a lot then it is more likely to make money for the option holder. Conversely, quiet shares have lower premiums since they are less likely to move. Since share prices usually fall by the amount of the dividend when the shares go ex-dividend, this needs to be taken into consideration when setting the option price. Interest rates do influence option prices, but their effect is fairly negligible. If you are a speculator the chances are that you will be buying calls or puts to profit from a move in the underlying share or index. Let us suppose, for example, you reckon that Corp X. Rather than buy the ordinary shares, you might be tempted to buy a call option that will be profitable if the share behaves in the way that you anticipate. So, what can you do? One course of action would be to buy the July call option, priced at 87p. Of course, the beauty of the option lies in the options that you are not obliged to hold it until the time of expiry — if the shares move as anticipated before expiry then the option can be sold at a profit, and this would be more appealing since the price of the option would probably still reflect some time value. Now let us alter the perceived outcome. Suppose that, come expiry, Corp X shares have advanced to p. To illustrate more clearly:. Equity sale Sell 1, XYZ shares p. Option sale Sell one July call p. As the can see, not only is the cost of buying the ordinary shares significantly greater, the return is the lot less. However, at this point it is probably wise to remember the risks involved. If you had anticipated that outcome you could have considered buying a put option. A put option is what you will buy if it is your intention to profit from a fall in a share price or index. Going back to our Corp X. Clearly, buying the put was the better option in this case. It might be the case that you hold a substantial amount of XYZ stock and are sitting on a good profit following a strong run. In this situation you might wish to protect your profit by buying puts against your XYZ shareholding. If you held 10, XYZ shares you might choose to hedge this position through the purchase of 10 contracts of July puts at 35p. If the shares are p or higher at expiry then the option will expire worthless. If the shares are below p at expiry then the put will return a profit, and so we can confidently assert that through the purchase of the puts you have locked in a sale price of p for your shares. To write an option is to sell an option that you do not already own. Unlike ordinary shares, there is no physical delivery of options, so once you have sold there is nothing to hand over to the market. However, writing options carries certain obligations. If you write a call on a share, you effectively agree to sell it at a fixed price in the future. Conversely, if you write a put you accept the obligation to buy the underlying shares at a fixed price. Furthermore, the writing of options requires you to lodge collateral with your broker which is then held as marginand the amount of margin you are required to deposit will be at least the minimum stipulated by the exchange. This margin is recalculated daily and, as a consequence, you will have to deposit more than is initially required most brokers. If you hold 10, shares options Corp X you might decide that, with the shares at p, you would be happy to sell them if they advanced to p. Rather than just waiting trade the shares to achieve this price, you could write a call against your stock with a strike price of p, thereby agreeing trade sell your shares into the market at a price of p if the shares are trade or above that level at expiry. In return for agreeing to sell at this level you take in a certain amount of option premium, in this case 34p. Option assignment Sell 1, XYZ p. This method of selling calls against shares already held is known as covered call writing. There are a number of crucial differences between equity and index options with which traders should be familiar. Traders should also be aware that there are two types of FTSE option, European and American. The key difference between the two is that the American-style options can be exercised on any business day up to and including expiry day, whereas European-style options options be exercised only on the day of expiry. These options also have different strike prices: American-style strike at point increments, at thepoint levels e. The European-style options also strike at point increments, but at 5, 5, 5, 5, etc. While it is obvious that the reason we trade options is to make money, traders should bear in mind that:. Writers of options should be aware that they can lose far more than their initial investment if, particularly, they choose to write calls naked i. Let's say, for example, that when Corp X reached p you felt that it had run far enough, and sold 10 contracts of the calls for 40p without holding the underlying shares first. However, suddenly XYZ is going to merge with ABC and the shares are trading at p. Not a very appealing position to be in. Fundementally, it must be remembered that Traded Options are inherently risky as you do not own any underlying security. With more complicated option types and strategies traders can loose more than their initial investment. As such, trading derivatives is not suitable for new or inexperienced traders. Directory of Forex Brokers. Page brings info on top uk traded options brokers, strategies for trading options techniques, traded options trading platforms, software for trading options info about buy sell indicators for traded options, the analysis for traded options software, guide to LTOM options trader,call strategies, put strategy, shorting with options dealing london marketmakers, writing options, LIFFE market analytics. Home Home Page About ukcitymedia. Contact Online Form Based in London Search Search Page List. A Guide to Traded Options. Traded Options, calls, puts and time values explained A guide to traded options and trading options on LTOM, traded options strategies, traded options brokers, FTSE Options on LTOM market, shorting stock market using puts, traded options explained, buy sell indicators trading on LTOM, strategies for dealing in traded options. Your browser does not support iframes. Traded Options, Trade, Puts and Spread Explained.
10 Best Binary Brokers In 2017 - Top Binary Options Trading Platforms Review - Youtube
10 Best Binary Brokers In 2017 - Top Binary Options Trading Platforms Review - Youtube
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