Well, if you’re someone who likes the idea of having an investment that doesn’t lose value over time and allows you to profit from relatively small moves in the markets, then the answer is: ‘You probably do.’
Because options offer flexibility, more traditional products don’t have by giving owners the option to buy/sell an asset at a fixed fee on/before a specific date. And unlike futures, you only need initial deposits, not margins like in most other types of derivatives.
It makes options ideal for those trading with a time horizon of weeks, months or even years, with both rising and falling markets.
What’s so special about OTC options?
Well, they’re not listed on traditional exchanges but are privately traded over the telephone.
They, therefore, allow sophisticated investors to buy or sell options before critical corporate events that may move prices without having to disclose their positions in the market, as is required on public exchanges like London’s Life and New York’s CME.
What can be done with options?
Options give their owners the entitle, but not the responsibility, to buy or sell an underlying security at a set price on/before a specific date.
It makes options ideal trading instruments for those trading with a time horizon of weeks, months or even years. And unlike futures contracts, they don’t require any margins – just initial deposits.
The most flexible type of option is the ‘call’ option, which gives its owner the right to buy something at a specific price before the due date.
Call options are popular with London-based traders because they can also profit from both rising and falling markets.
How do I trade them?
You have three choices, all of which come with their trading strategies. First, traditional options are bought on mainstream exchanges like London’s Life or New York’s CME.
Then there is the new breed of ‘self-clearing’ options that trade over London based electronic platform BATS Exchange.
These are cheaper to trade, which is why London based brokers London & Capital, London Capital Group and London Bridge Trading have adopted them.
And finally, there are the ‘off exchange’ options, or ‘over-the-counter derivatives, where trades are agreed directly between two parties over the telephone.
Prices are often less favourable, but these are ideal for short term hedges. That’s because they’re privately negotiated.
Such sophisticated investors can avoid disclosing their positions in the market – useful when you want to buy an option before a significant corporate event that’s expected to move prices.
Whatever instrument you choose, it must be traded on a demo account for you to become accustomed to how it works and build up your confidence before you start trading with real money.
London based London Capital Group runs a demo account service for just this purpose, so if you’re considering taking up options trading, then it may be worth looking them up to find out more information on how to get started.
What is a demo account?
A demonstration account allows people to practice trading without using real money.
This way, they can become familiar with how the markets work and hone their skills before investing their capital.
Saxo Bank is a London based London Stock Exchange regulated provider of professional trading software and brokers.
They also offer their London Stock Exchange regulated OTC service for sophisticated/professional clients.
BATS is a global electronic stock exchange that offers cutting-edge technology for traders of all experience levels to trade options, stocks, futures and more.
Based in London, BATS connects buyers and sellers of financial instruments on web-based trading platforms designed to enable rapid execution at excellent prices across all major asset classes.
The world’s leading marketplace for European listed derivatives with competitive pricing and innovative products catering specifically for the hedger, the intermediate investor and the proprietary trader – whose needs are met by our combination of price improvement (an average 97% per year) and deep liquidity: over three million trades per day, on average.
For more information visit the site.