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Options spread betting is extremely risky, but offers very rewards. One must understand trading of options to make accurate wagers on bets.
Options are a financial tool which gives the trader certain rights. These rights allow a trader to engage in some specific action. Options are a derivative so prices depend on the underlying price.
The underlying price is on an asset of a stock, bond, or currency. There are two types of options, a call option and a put option. A trader may use these options on a spread bet or may use both.
A call option gives a trader the right to purchase some shares. These shares can be bought at a certain fixed price in an option. This call option signifies a buy bet but does not have to occur.
A put option allows traders to sell shares at a fixed price. This bet only gives the trader the option, but no requirement. Both of these spread betting options have a future expiry date.
The price of options may fluctuate with prices, but not always. The depending factor is the underlying volatility of the market. This means a trader must watch the market carefully trading options.
In options betting, a firm will offer a spread with an expiry date. The options spread will also include a strike price by the firm. A trader makes a call or put that the market price reaches the strike.
At the end, profits or losses are calculated using both prices. The difference of the ending market and the strike price are found. This number is subtracted from the level the trader bought or sold at.
The difference is multiplied by the stake put up by the trader. This product is the profit or loss depending on a trader’s prediction. Options spread betting results can be difficult to predict at times.
Options betting can be tricky so it helps to look at an example. The FTSE is currently at 6450 and the betting firm issues a strike. The September strike price will be 6600 according to the firm.
The betting firm offers a trader to put at 150 or call at 160. The trader studies and decides to call at 160 for a wager of £5. The FTSE increased in the market and is a winning bet for the trader.
September's ending price is 6835 and the strike price is subtracted. The difference of the two is a result of 235 for this options bet. The bettor made a call option of 160 and is deducted from 235.
The resulting number is 75 which is multiplied by the wager. A trader’s wager was £5 and when multiplied yields a product of £375. This £375 is the trader’s full entire profits with no fees deducted.
The strike prices make options spread betting a bit more complicated. Firms may offer different strike prices for spreads for variety.
This variety further expands a trader's options and risks in betting. Spread betting on options is recommended for experienced bettors.
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* Results are the outcome of backtesting and are hypothetical since not all trades were taken. Future results may be higher or lower than past results.
