Discover the fundamentals of options trading and find out how to get started with options trading in Switzerland. Choose from a range of expiries and trade on a breadth of markets when you trade options with us.
Options trading is the act of buying and selling options. These are contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price, if it moves beyond that price within a set timeframe.
For example, let’s say that you expected the price of US crude oil to rise from $50 to $60 a barrel over the next few weeks. You decide to buy a call option that gives you the right to buy the market at $55 a barrel at any time within the next month. The price you pay to buy the option is known as the ‘premium’.
If US crude oil rises above $55 (the ‘strike’ price) before your option expires, you’ll be able to buy the market at a discount. But if it stays below $55, you don’t need to exercise your right and can simply let the option expire. In this scenario, all you’ll have lost is the premium you paid to open your position.
When you trade options with us, you’ll be using CFDs to speculate on the option’s premium – which will fluctuate as the probability of the option being profitable at expiry changes. Trading options in this way can form an important part of a wider strategy.
Take a look at the key types, features and uses of options:
Buying a call option gives you the right, but not the obligation, to buy an underlying market at a set price – called the ‘strike’ – on or before a set date. The more the market value increases, the more profit you can make.
You can also sell call options. As the seller of a call option, you will have the obligation to sell the market at the strike price if the option is executed by the buyer on expiry.
What are put options?
Buying a put option gives you the right, but not the obligation, to sell a market at the strike price on or before a set date. The more the market value decreases, the more profit you make.
You can also sell put options. As the seller of a put option, you will have the obligation to buy the market at the strike price if the buyer exercises their option on expiry.
Swiss options traders can use CFDs to speculate on options prices – instead of trading them directly. Since CFDs are cash-settled at close, you’ll never have to deliver, or take delivery of, the underlying.
Options are leveraged products much like CFDs; they allow you to speculate on the movement of a market without ever owning the underlying asset. This means your profits can be magnified – as can your losses, if you’re selling options.
For traders looking for increased leverage, options trading is an attractive choice. By choosing your strike and trade size you get greater control over your leverage than when trading spot markets.
If you’re a Swiss trader who’s buying call or put options as CFDs with us, your risk is always limited to the margin you paid to open the position. However, it’s important to remember that when selling call or put options your risk is potentially unlimited.
Hedging with options allows traders to limit potential losses on other positions they might have open.
Say you owned stock in a company, but were worried that its price might fall in the near future. You could buy a put option on your stock with a strike price close to its current level. If your stock’s price is down below the strike at your option’s expiry, your losses are limited by the option’s gains. If your stock’s price increases, then you’ve only lost the cost of buying the option in the first place.
Traders use some specific terminology when talking about options. Here’s a rundown of some of the key terms:
There are three main factors affecting the premium, or margin, you pay when you trade options in Switzerland. All these factors work on the same principle: the more likely it is that the underlying market price will be above (calls) or below (puts) an option’s strike price at its expiry, the higher its value will be.
When you trade CFDs on an option with us, you’ll pay a margin that works in a similar way to a traditional option premium. The two terms are used interchangeably below.
The Greeks are measures of the individual risks associated with trading options, each named after a Greek symbol. Understanding how they work can help you calculate the risk involved with each of the variables that affect option prices.
There are numerous strategies you can use to achieve different results when you’re trading options. Popular options trading strategies include:
You can trade options on a huge number of markets with us in Switzerland.
Depending on the kind of trade you’re making, you can choose between daily, weekly, monthly or quarterly options to suit your goals.
Use daily and weekly options if you want to take positions on markets quickly, but with greater control over your leverage than when trading other products – such as trading CFDs on spot markets.
If you’re looking at longer-term market movement, monthly and quarterly options mean you can take positions up to three quarters before expiry – plus you’ll know your risk upfront and usually save on funding charges.
Once you know the timeframe you’re going to trade, you need to determine whether you want to buy or sell a call or put option on the market you’re trading. The type of option you trade, and whether you buy or sell, will depend on whether you want to speculate on the market rising or falling. Remember that buying options is limited-risk, while selling is not.
Once you’ve decided whether to go long or short, you can choose the strike price and premium (or margin) you want to open the position at, and place your trade.
Once you’ve opened a position, you need to keep an eye on market movement and the potential profit or loss of your position.
If the option is in the money, you may wish to close it before the expiry to maximise profit. Or if you aren’t in profit you can leave your position open to expiry, and, if it fails to move into profit, only lose the price you paid to open.
There are two ways to buy and sell options in Switzerland:
Like shares, listed options are traded on registered exchanges. You have to meet certain requirements to buy and sell options directly on an exchange, so most retail traders will do so via a broker.
When you trade with an options broker, you deal on their platform – usually paying commission on each trade – and they execute the order on the actual exchange on your behalf.
What is the definition of options trading in finance?
Options trading is the buying and selling of options. Options are financial contracts that offer you the right, but not the obligation, to buy or sell an underlying asset when its price moves beyond a certain price within a set time period.
Can I profit from options trading?
Yes. If you buy an option you can make a profit if the asset’s price moves beyond the strike price (above for a call, below for a put) by more than the premium you initially paid before the expiration date. Your maximum risk is the premium you pay to open.
If you sell an option you stand to make a profit if the underlying market doesn’t hit the strike price before the option expires – you profit from the premium paid to you by the holder at the outset of the trade. However, your maximum risk is potentially unlimited if the market moves in favour of the option holder.
Can I trade stocks with options?
Yes, you can trade stock options. Rather than owning the actual stock, you have the right to buy or sell it at an agreed price on a specific date.
Can I buy a call and a put on the same stock?
Yes, there are various options trading strategies which involve simultaneously buying a put and a call option on the same market. These include straddles, strangles and spreads. Take a look at our strategy article to find out more.
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