Options: How To Spread Bet When Markets Go Up
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Spread betting the options markets is different than other markets. Options are called options because a trader has an option to buy. The trader has the option to buy the underlying market later on.
Since options betting is the right to buy it does not have to happen. A trader only has the right to buy but not the obligation to buy. The trader will execute this right if and when one decides to.
Spread betting the options markets to go up is called a call option. A call option signifies the trader predicts the price to increase.
The market the trader chooses depends on the spread betting firm. Firms offer options on many financial instruments, like stocks. Other instruments are available for options betting on the exchange.
The FTSE 100 is one market which is sometimes offered as an option. To place a call bet a trader looks to see what it is trading. The trader looks to see the price offered by the spread betting firm.
The FTSE 100 is trading at 5300 and the price of the bet is 14-17. A trader believes the FTSE will increase so a call bet is made. A call bet means the trader is taking the betting firm’s bet at 17.
A trader chooses a strike price or the level the market will reach. The trader chooses 5400 for the strike price on the FTSE. The prediction is likely the most difficult part of spread betting.
The trader must also decide on the wager or stake amount for the bet. One's bet is sent as a buy of £8 per point of Daily FTSE 5400 Call.
The right to buy means if the FTSE reaches 5400, one has a right. This is the right to buy the FTSE 100, but not the obligation. The trader may buy the FTSE at the stake size of £8 per point.
Betting the market to go up does have a premium attached to it. The call price was 17, the higher number in the spread of the two. To offset the premium, the FTSE really needs to hit a price of 5417.
This also means the maximum losses are the premium price times the wager. Therefore, the total potential loss for a trader on this bet is £136.
Options spread betting is pretty straightforward and comprehensible. Once one realises the bet and the right to buy are 2 different things. Spread betting the options market to go up always includes a call bet.
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