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Options Overview

Options Basics To Understand The Strategies

What Are Options?

Options contracts enable traders to either buy or sell an underlying asset at a specified price on a predetermined date. While spot trading enables a trader to bet on an asset increasing or decreasing in value and share linearly in their returns, options allow for more complex, non-linear returns when expressing a market view.

Terminology

There are two types of options:
  1. 1.
    Calls - Contracts that allow you to buy an asset at a set price on a specified date.
  2. 2.
    Puts - Options contracts that allow you to sell an asset at a set price on a specified date.
All options have the following properties:
  • Strike price - The price at which the underlying asset can either be bought or sold.
  • Expiry - The date at which the option expires.
  • Premium - The price of the options contract

Why Use Options

Options are a type of derivative, meaning their value relies on an underlying asset, enabling investors to express more complex market views and achieve unique risk/return profiles.
Options have the following key advantages:
  1. 1.
    Hedging
  2. 2.
    Leverage
  3. 3.
    Non-Linear Returns