Compared to futures trading, trading in options is relatively less risky. Options are mainly defined by the following features:
- Call Option: The buyer has the right to buy the underlying at a specified strike price on a future date. You would buy a call option if you can predict the price of a future going up.
- Put Option: The buyer has the right to sell the underlying at a specified strike price on a future date. If you believe the futures price is going to move lower, you would buy a put option.
- Strike Price: The price which you have set to buy or sell the underlying futures contract. Most traders do not convert the option. Instead, they will close out the option position and collect the profits.
- Time to Expiration: The time frame before the option contract ceases to exist. Generally, the more time an option has to expiration, the more expensive it will be.
Benefits of trading Options
- Flexibility to tailor to your desired exposure and risk for an anticipated move in the options price
- Ability to gain leverage without committing to a trade
- Relatively lower risk and volatility
What Options Futures contracts are available for trading? Find out more.