Options are flexible, but they can also be complicated. Instead of buying a market in the hope that its price will increase, you must factor in how much its price will increase and when the movement will occur.
The holder of an option can only lose the premium that they’ve paid, but the writer has many more risks to deal with. These can include early exercising if the holder decides to take up their right to buy or sell the underlying market, or a margin call.
The premium you’ll pay to buy an option is dependent on more than just the price of its underlying market – so before you start trading options you’ll need to learn what moves options prices.
A significant part of an option’s value will often come from the remaining time it has before it expires. This value will diminish as it draws closer to expiring, making options extremely time sensitive.
Find out more about the risks associated with options trading – and how to mitigate them. Or if you’d like to consider an alternative market, you can also use CFDs to trade on price movements in forex, share, indices and more.
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