What is an Option?
An option is a contract which gives the buyer the right, but not the obligation to buy or sell a specific financial product also known as the option’s underlying instrument. Options establish a specific price, called the strike price, at which the option contract may be exercised. Options have an expiration date, on which they are exercised or expire with no value. The buyer of an option is called a holder, while the seller – a writer.
ActivTrades offers CFDs on Options. They can be traded until expiry date and after expiry are settled in cash.
How to use options
Benefits of buying CFDs on Options
Increase your exposure without all the associated risk as you can only lose your initial investment.
Options trading was originally created as a hedging tool and gives you the ability to limit your loss should the price change.
Ideal for diversifying your product portfolio. You can use less capital to enter different markets, employing less risk, while you gain similar exposure.
Options can be categorised into two main types, Call and Put. You can choose whether to buy Call or Put option, depending on what you would like to achieve. The option premium is what option buyers pay to obtain the right to exercise the option at a specified price before or on the day of expiry.
Call – If you buy a call, you have the right to buy the underlying instrument at the strike price on or before the expiration date.
Put – If you buy a put, you have the right to sell the underlying instrument at the strike price on or before the expiration date.
Trade CFDs on Options for Ger30 with ActivTrades
|Symbol||Minimum trade size||Maximum trade size||Leverage||Hedge minimum requirement||Point value||Tick value||Limit & stop level (In Points)|
|CFDs on Options for Ger30||0.01 lot||50 lots||1:4||10%||5 EUR||0.05 EUR||5 points|
Leverage for Retail customers under ESMA regulation
|CFDs on Options||Max Leverage 1:2||Margin 50%||Close-out Level 50%|
|Contract months||Trading session||Expiry date|
|JAN, FEB, MAR, APR, MAY, JUN,
JUL, AUG, SEP, OCT, NOV, DEC
|09.10 – 17.30 CET||Two business days prior to Third Friday of Option contract month|
ActivTrades will offer for trading options with strike price with distance of up to 300 points from the current Ger30 Cash Index price. Increment of strike prices for Ger30 options will be 100 index points.
Clients will be able only to manage existing positions in options with strike price with difference exceeding 400 points from the current Ger30 Cash Index price, but not open new ones.
Margin required for both long and short positions is calculated as Lots*Price*Lot Size/Leverage
Leverage for trading CFDs on Options is set regardless the leverage on the client account.
CFDs on Ger30 Cash Index options will be settled in cash, meaning that at expiry of the option, the position in the option will be closed at the last price of the trading session for the last trading day.
Ger30DeP112 (December Dax Put Option 11200)
Client bought 3 lots Ger30DeP112 at price 190.25 EUR
Margin required: (3*190.25*5)/4 = 713.44 EUR
Client close position at price 215.36 EUR
Position result: (215.36 – 190.25)*3*5 = 376.65 EUR
Consider this before you start trading options
Option sellers face amplified losses. Unlike an option buyer (or holder), the option seller (writer) can incur losses much greater than the price of the contract. Remember, when an investor writes a put or call, he or she is obligated to buy or sell shares at a specified price within the contract’s time frame, even if the price is unfavorable (and there’s no cap on how high a stock price can rise).
Overnight gaps and news events can have significant impact on options. In the event of the underlying market opens with a gap the buyer of the option may lose the premium without having the opportunity to react to the market movement. The seller of the option face even higher risk in such event and may lose the entire account balance.
During news events the same applies as the underlying market may be subject to extreme short-term volatility and the price of the option may swing from one direction to the other within milliseconds. You should consider whether you can afford the risk to lose your money.
Limited time for your trading strategy to work. The nature of options is relatively short-term. Options investors are looking to capitalize on a near-term price movement, which must take place within days, weeks or months for the trade/contract to pay off. That requires making two correct assumptions: picking the right time to buy the option contract, and deciding exactly when to exercise, sell or walk away before the option expires. Long-term stock investors aren’t on a deadline. They have time — years, even decades — to let their investing theses play out.
This Product is intended for investors who in the short term are prepared to take a higher level of risk of loss for a higher potential return on the capital invested in the Product. The Product is targeted at investors having speculation or hedging objectives, and who have experience in trading derivatives on margin. The margin requirement on this Product may differ depending on the trading experience and relevant knowledge of the retail investor
We have classified this product as 7 out of 7, which is the highest risk class. This rates the potential losses from future performance of the product at a very high level.
CFDs are leveraged products that due to underlying market movements can generate losses rapidly. You may be required to deposit additional funds. There is no capital protection against market risk, credit risk or liquidity risk.