A listed option is a security that gives the holder the right to buy or sell an underlying asset at a specific price on or before a certain date. Listed options are traded on exchanges, and over-the-counter (OTC) options are traded directly between two parties.
Listed options typically have standardized contracts, meaning that the contract terms are set by the exchange on which it trades. You can use options for various purposes, such as hedging risk, generating income, and speculating on future price movements of an underlying asset.
The value of listed options
The value of a listed option is derived from the underlying asset’s price and the time remaining until the expiration of the option. When buying or selling options, investors must consider many factors, such as the type of option, the strike price, and the expiration date.
Options are a versatile tool that can be used in many different ways. Some common strategies include buying call options to bet on an increase in the price of the underlying asset or selling put options to bet on a decrease in the underlying asset’s price.
What is stock trading?
Stock trading is the buying and selling of shares of publicly traded companies. When you buy stocks, you become a shareholder of that company and are given the right to vote on certain company decisions.
Stock trading can be done through a broker, which will charge a commission for each trade. Alternatively, stock trading can be done online through many different platforms.
What are listed options in stock trading?
Listed options in stock trading are a type of security that gives the holder the right to trade an underlying asset at a specific price on or before a certain date. Listed options are traded on exchanges, and over-the-counter (OTC) options are traded directly between two parties.
What are the benefits of listed options in stock trading?
There are many benefits of listed options in stock trading. Some of these benefits include:
Options can be used for generating income
One way to generate income with options is to sell covered calls. It involves selling call options while simultaneously owning the underlying stock. If the stock price remains stable or decreases, you will keep the premium from selling the call option. If the stock price goes up, you may have to sell your shares at a lower price than what you would if you had just sold them outright, but you will still profit.
Options provide leverage and are liquid
When buying options, you are only required to pay a small fraction of the underlying asset’s price. It allows you to control a more prominent position with less capital. However, this also means that your potential losses are amplified. Options are very liquid, meaning they can be easily bought and sold. It provides flexibility and can help you take advantage of opportunities.
What are the risks of listed options in stock trading?
Here are just some of the risks of listed options in stock trading.
Timing and inflation risk
The timing risk is that the stock price will not be where you expect it to be when the option expires. It can happen if you underestimate how long it will take for the stock price to reach your target price. Inflation risk is the risk that the purchasing power of your money will decrease over time. It means that even if the stock price goes up, the value of your investment may decrease if inflation is high.
Interest rate and liquidity risk
Interest rate risk is the risk that changes in interest rates will affect the stock price. It can happen if you invest in a company with a lot of debt. Liquidity risk is the risk that you will not be able to sell your option when you want to. It can happen if there are not many buyers for the option you are selling.
If you’re ready to start trading listed options in Singapore, you can visit https://www.home.saxo/en-sg/products/listed-options for more information.