Trading options with CFDs
How to sell an option in the IG platform
As for bought options, when you sell options with IG we don’t actually sell assets on your behalf. You are speculating on the price of the option, where the price is the premium.
We’ll settle your position against the value of the option based on the settlement price of the underlying asset at the expiry point. This could mean an additional loss for you if the option doesn’t work out as you predicted. If the option expires worthless, you get to keep all of the premium.
Let’s see how this works in practice
Suppose you wanted to sell an option on a commodity like the US Crude Oil.
As with buying, you can search for your market, view the options chain and select the details you want in our platform or app.
To bring up a deal ticket, select ‘sell’ for your desired option from the list.
You’ll see a deal ticket much like the following – the figures are as an example only.
What are the trading costs for a sell option?
When selling an option, you’ll incur a margin equal to the underlying deposit factor x size. Deposit factors are shown in our product details for each market.
It’s important to note that your maximum loss may be greater than this amount, and you may have to pay variation margin should your position go against you.
Your maximum profit is equal to the premium you receive, which is calculated like this:
Premium = size x option price (bid)
Your profit or loss is calculated as follows:
Profit/loss = size x (option closing price - option opening price)
Say US 500 is currently trading at 4500. You think it will stay around this level and want to sell half a contract ($100 lot size) of the May 4500 call priced at 146/150.
Your margin will be:
Stake size x deposit factor = $50 x (% x 4500) = €11,250
The premium you stand to receive is $50 x 146 = $7,300
If the US 500 settles below 4646, the option will be in profit. Anything above will result in a loss:
Breakeven (Call) = strike price + option price = 4500 +146 = 4646
You hold the option to expiry, at which point the US 500 is at 4450.
Premium received = $7,300
Breakeven = 4646
Option closing price = 0
True profit/loss = -$50 x (0 - 146) = $7,300 profit
Because the US 500 price has settled above the strike price, the buyer won’t exercise the right to buy – so as the seller you keep the total premium received.
The margin you put down will also be released and available to place new trades.
Keep in mind that when selling a put option your potential loss is large, so it’s very important to understand the market before deciding to trade.
Closing your position and taking your profit
By monitoring your trade in the open positions screen, you can see the current price we’re making for that option.
You can choose to close your deal at any point against that price, or leave the option to expiry.
At expiry your position will be settled against the value of the option, as defined by the price of the underlying at that point.
So, are you ready to put what you’ve learned to the test?
Log in to your demo trading account to try placing a sell option for yourself. Access options markets from the finder menu and scroll down the list of assets and maturities, or use the filters on the left to drill down to the asset class and maturity you’re interested in.
You’ll see the options chain: a list of strikes, prices for both puts and calls, along with the implied volatility (IV) value. You can select for different maturities and see the price for each one.
To bring up a deal ticket, select ‘sell’.
You’ll see a deal ticket with details of the option you have selected – complete it, and you’re ready to practise selling your first option.
- Remember when you buy options with IG we don’t execute – you’re speculating on the option
- When selling us an option you’ll incur margin equal to size x underlying deposit factor
- Keep in mind that your losses can exceed your initial margin payment, and you may need to pay variation margin if the market moves against you
- Your maximum profit is equal to the premium you receive
- Options will be cash-settled at expiry, as defined by the price of the underlying asset at the expiry point
What are options?7 min
What are the benefits of trading options?4 min
How are options priced?5 min
Managing the risks of options trading6 min
Buying options – some examples6 min
How to buy an option in the IG platform7 min
Selling options – some examples6 min
How to sell an option in the IG platform7 min
An introduction to the Greeks4 min
Simple strategy 1: trading delta4 min
Simple strategy 2: straddle and strangle8 min