Options: How To Spread Bet When Markets Go Down
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Options betting is the right to buy or sell the underlying market. As other spread betting markets, profits are made when prices fall. This means traders may spread bet on options markets to go down.
In a typical spread bet, the spread betting firm quotes a spread. The trader buys or sells with a wager determined by the trader. It is slightly different in betting options markets for trading.
In options markets, the spread betting firm presents a spread price. This is the cost of the bet not a range of the market's price. The wager is still determined by the trader which gives some control.
The trader must also decide a strike price for the underlying market. This strike price is what the trader believes the market will reach.
In spread betting options to go down, a trader places a put option. This means one believes the underlying value will decrease in price. Gold is trading at 1205 and a trader predicts a price decrease.
The trader must choose a strike price and chooses 1110 as the strike. Additionally, the wager must be determined and is set at £10. A firm offers a price for 8-11 so the cost of a put option is 8.
The price of Gold falls to 1102 which is below the strike price. This gives the trader the right to sell Gold at £10 per unit. In this scenario the trader is not awarded any profits on the bet.
This is because the strike price was 1110 and the cost was 8. This is a difference of 1102 and means the trader broke even. However, for every movement past 1102 the trader would receive £10.
A trader betting in the options markets knows the potential losses. In the above bet, the most the trader could have lost was £80. The loss is the cost of the bet times the wager a trader placed.
Spread betting options markets to go down can make profits. Many traders tend to shy away from this kind of options trading. Many traders tend to forget one can make money on declining prices.
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