Options

[vinicius]

I`m trying to understand a litlle about options and got stuck..

Let`s see a daily option..:

FTSE 4980 CALL - 28/11

Sell - 240.6
Buy - 246.6
Change - 5222

So..

If I buy this option I get the right to buy it at 4980 right?

In the end of the day, if the price is at 5100, I could pay the strike price to purchase the contracts and make 120 pips?

And if the price goes down lets say 4900 I wouldnt want to purchase the contracts and lose the premium price I have paid (246.6)?

A lot trick..

Thanks for the help.


Vinicius

 

[Rhody Trader]

Correct on all counts, though I would add that it almost never makes sense to actually execute the option. You're better off selling it.

 

[tomorton]

I wonder why you would be interested in options. I remember from an introductory seminar at LIFFE in the 90's that they were promoted as a means of going short, either speculating on a price fall or to hedge a conventional long position. But now that CFDs and spreadbetting have become more varied, widely available, accepted, understood and have equivalent leverage and much lower overheads, do options have any point for the private trader?

 

[ES YM]

I wonder why you would be interested in options. I remember from an introductory seminar at LIFFE in the 90's that they were promoted as a means of going short, either speculating on a price fall or to hedge a conventional long position. But now that CFDs and spreadbetting have become more varied, widely available, accepted, understood and have equivalent leverage and much lower overheads, do options have any point for the private trader?

Options aren't just 'Another way of Long/Short the underlying', they have their own structure and dynamics and therefore can be used to profit from in a speculative nature whereby you couldn't in the underlying outright contract.
For example you can make money when a market remains flat. How can you do that with a Long or short position?

Also they have exploitable opportunities in assessing whether they are over or under priced, and also traders to profit from percieving higher volatility than expected (Or less)

Hedging isn't just about being 'Flat'; Options allow participants to hedge in such a way that you are still net long (Due to the delta of the option), yet hedged beyond the strike price (due to excercise).... Therefore you can have a long position, with an option to hedge and profit from the upside; I do not see how you can do that with a CFD ?

Options aren't just another way of going Long or Short.

They have their own benefits.

 

[tomorton]

Options aren't just 'Another way of Long/Short the underlying', they have their own structure and dynamics and therefore can be used to profit from in a speculative nature whereby you couldn't in the underlying outright contract.
For example you can make money when a market remains flat. How can you do that with a Long or short position?

Also they have exploitable opportunities in assessing whether they are over or under priced, and also traders to profit from percieving higher volatility than expected (Or less)

Hedging isn't just about being 'Flat'; Options allow participants to hedge in such a way that you are still net long (Due to the delta of the option), yet hedged beyond the strike price (due to excercise).... Therefore you can have a long position, with an option to hedge and profit from the upside; I do not see how you can do that with a CFD ?

Options aren't just another way of going Long or Short.

They have their own benefits.

Cheers, this is good stuff. And yes, I make nothing in a flat market.

 

[meanreversion]

How popular are binary options with readers on trade2win?

 

[SuperScalper]

If the price is at 5100 you still lose because the profit you make from the option contract is smaller than the premium you paid for it !

I`m trying to understand a litlle about options and got stuck..

Let`s see a daily option..:

FTSE 4980 CALL - 28/11

Sell - 240.6
Buy - 246.6
Change - 5222

So..

If I buy this option I get the right to buy it at 4980 right?

In the end of the day, if the price is at 5100, I could pay the strike price to purchase the contracts and make 120 pips?

And if the price goes down lets say 4900 I wouldnt want to purchase the contracts and lose the premium price I have paid (246.6)?

A lot trick..

Thanks for the help.


Vinicius

 

[Plug 5]

Is there anyone that can help on conditional orders. ie. placing an order to buy a particular option contract when the underlying price reaches a specific area. What I'm confused about is once you have determined at which point you want your option to be triggered (ie. the underlying index, stock, commodity or fx price), how do you then determine at what options premium the trade should trigger?

I'd welcome any help on this.

Thanx
P

 

[gooseman]

you should be able to ask your broker for a rough delta level where a price will trade but that is assuming constant vol and that's your unknow. you can't be that specific unfortunatelyt.

 

[Plug 5]

Hey gooseman - thanks. that mades sense. What the options calculators? There is one on the CBOE website.

P

 

[gooseman]

modified black scholes