“Are options available for all stocks in London?” It’s a question that many novice traders ask, which is understandable because it can be challenging to understand what derivatives are and even more challenging to get access to them.
So what exactly are the options?
An option will give the buyer the right (but not the duty) to buy or sell an asset at a price (the strike price) on or before a specific date (the expiry date).
It means that when you’re considering investing in options, you don’t have to purchase anything.
The seller (the person who gives the option) is obliged to hold the stock for you until you exercise your right to buy or sell it.
There are two types of options: calls and puts:
- A call option allows a person to buy the stock.
- A put option lets you sell the stock.
You can also think about buying insurance on the underlying asset because this sort of derivative locks in a purchase price but gives you more time to pay for it, whereas standard trading does not.
Now onto some terminology, three terms define how much an option costs: premium, strike price and expiry date.
- The premium is what you pay for an option, and it is determined by supply and demand in the market.
- The strike price is made at the time of purchase, and this will either be equal to or in-the-money when compared to the current share price.
- Lastly, the expiry date refers to the last day you can exercise your option.
Some exchanges offer derivatives on their shares, such as LSEG (London Stock Exchange Group), back to London stocks now, but some brokers do.
Options are more often than not seen as something only bullish investors can get involved with – and while this used to be valid for securities traded on major exchanges in London, times have changed.
Options are now available for more than just FTSE 100 companies.
For example, if you think that Vodafone shares are set to rise in the coming weeks and months, one option contract gives you control over 100 stocks – but with no risk involved if the company doesn’t perform as expected. Of course, this is just one example.
Options can be tailored in many different ways, depending on your outlook.
Options were only available for FTSE 100 companies, which significantly limited their application.
However, introducing new rules and regulations that give companies complete access to markets and make trading fairer for all market participants has changed dramatically.
The consolidation of liquidity between Life and NDAQ OMX exchanges is a case in point, as it allows for more choice and flexibility when it comes to the instruments available.
It means that options are now available on a broader range of stocks than ever before.
So whether you’re looking to trade indices such as FTSE 100 or significant global markets such as S&P 500 and Japan’s Nikkei 225, you can get involved through an option if you want to hedge your bets or exploit pricing anomalies before they correct themselves.
So if you’re looking to take advantage of a bullish or bearish outlook, options are available for all the major trading markets and exchanges in London.
With protection from price falls and an opportunity to benefit from rises, options can enable you to invest safely without all the risks involved with buying directly into market movements.
And with plenty of choice between terms and premiums, it’s easier than ever before to make sure that your investments are tailored precisely how you want them.
So don’t be intimidated by the jargon and complexity behind option contracts – because it is exactly as simple as we’ve just explained.
And with the latest rules and regulations lifting all restrictions, you can now take advantage of options across not just major FTSE 100 companies but many other markets as well, such as indices such as FTSE100 and Nikkei225 and also global markets such as S&P 500 and Japan’s Nikkei 225.
It couldn’t be easier to invest in options – so start by finding out more right here at Saxo Bank.