Options trading can be a great way to make money, but it’s essential to understand the basics. Firstly, options trading is a type of trading where you speculate on the future price of an asset, and you can buy or sell options to make a profit.
There are two types of options
There are two main types of options in trading; call options and put options. A call option allows you to buy an asset at a specific price, while a put option allows you as a trader to sell an asset at a specific price.
If you expect the price of an asset will go up, you can buy a call option, and if you expect the price will go down, you can buy a put option. You can also sell options, which are known as writing options.
Once you sell a call option, you give someone the right to buy an asset from you at a specific price, and if you sell a put option, you allow someone to sell an asset to you at a specific price.
What are the benefits?
The main benefit of options trading is that you can make money whether the market goes up or down. If you buy a call option and the market goes up, you will make a profit, and if you purchase a put option and the market goes down, you will also make a profit.
Another benefit of options trading in the UK is that it gives you the ability to speculate on the actual price of an asset without actually owning it, which eases some of the complications of owning an asset.
What are the risks?
The most significant risk with options is that depending on the market and the context, options canbe very volatile, which means that their prices can change quickly in a very short period, which can be both good and bad. If the price of an asset moves in your favour, you can make a lot of money, but if it moves against it, you could lose everything very quickly.
There is also a chance that someone could exercise the option before it expires, which means they are taking away your right to buy or sell an asset, which can be risky if the asset’s price has gone down since you sold the option.
Despite these risks, options trading can be a great way to make money. Just keep in mind that it is essential to understand what you’re doing before getting started. If you do your research and learn how to place trades that can move in your favour, you can reduce your risk and increase your chances of success.
Options trading strategies
Here are some options trading strategies for newbies in the UK trading scene:
Choose the right broker
The first step in any trading strategy is to choose a reputable broker. There are many different brokers out there, so it’s essential to do your research and select one that is licensed in the UK and regulated by the Financial Conduct Authority (FCA). Additionally, compare fees and account minimums before deciding on a broker.
Understand the basics of options trading
Before jumping into options trading, it’s essential to have a solid understanding of the basics. Options are contracts that give the buyer the right but not the obligation to buy an asset or sell one at a specific price on or before a certain date. The most popular options in the UK trading scene are put options and call options.
Consider using an options trading strategy
Once you’ve mastered options trading basics, it’s time to start thinking about using an options trading strategy. One common strategy is known as a ‘collar’, which involves purchasing a put option with a strike price below current market value and selling call options with higher premiums for extra income. Other popular trading strategies include covered calls and buying protective puts.
If you’re looking to get started with options trading in the UK, many reputable brokers can help guide you through the process. A good option includes Saxo capital markets. However, be sure to research your options before settling.