Financial Options

Financial Options

The options are derivative financial products. All derivative financial products require a certain level of experience, by what many consider using these products as risky investments. But in all capital investment, the greater the risk, greater can be profitability, so having a good knowledge about options, some quite prominent gains can be obtained. Click Paul Price to learn more. For most beginners, it is recommended to acquire a basic knowledge about what are the options and how they work, before deciding on this type of operating. Let’s see what are the investment through options. What are a basic and simple definition of option choices would be as follows: an option is a financial derivative, since it is derived from the price of another financial product in an underlying market. There are two kinds of options: call and put. A call option gives an investor the right to buy an asset at a level determined with a time limit.

Otherwise, the put option gives the right to sell the asset at a certain level, with a temporary expiration. By this transaction the investor pays a Commission which is called the premium. Therefore, the options can be opened in both directions: when the trend of the markets is bullish and when bassist. The price of the option is always derived from the price of the underlying asset and the position can be closed on or before the date fixed. Practical example of options call and put an investment of capital through options can perform in different markets: forex, stocks, indices, commodities, among others. Consider a practical example to display one operating with options on commodities, specifically on gold: an investor expected that gold is going to substantially revalue in a given time frame.

The current price is $1,300 per ounce and the investor decides to open position (buy) a call at this level ($1,300) option, which is called the agreed price. After a few days the price of gold reaches the level of $1,400. Since inverter was made with the right of purchase at the 1,300 level, the option becomes rather appealing, since now you can buy at a lower price than the underlying market, or also can sell the option before the expiration date and make their profits. The previous case referred to a call option, but let’s see how the operational differs if we refer to a put option. I.e. in the case of the put options, the inverter provides that the underlying asset will devalorar. So if you purchase a put on the EUR/USD pair option is because it expects that the Euro’s weakening against the U.S. dollar. If the forecasts of the inverter are met within the expiration date, can be considered that its operation has successfully completed. As we have seen, the price of the underlying asset, the expiration date of the option and the volatility of the markets, they are the three basic premises to assess at the trading with options. The above comments do not constitute investment advice and therefore IG Markets does not accept any responsibility for any use that can be made of them. CFDs are a leveraged product that entail a high level of risk and may result in losses that exceed your initial deposit. Make sure that you understand fully the risks involved and perform a constant monitoring of your investment.


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