LONDON, June 20, 2011 /PRNewswire/ --
Options spread betting can be perceived as a more complicated alternative to regular spread betting. However, options spread betting is a perfectly viable limited risk alternative to speculating on financial markets, as this City Index (http://www.cityindex.co.uk/) guide explains.
There are two types of options, Calls and Puts. A Call gives you the right to buy a market, where as a Put gives you the right to sell. However, you can go long and short on Call and Put options, meaning you can buy and sell both. You will need to analyse the markets to decide what is best for your trading strategy.
How to go long on a call option
It's June and the UK 100 is at 4920. The City Index UK 100 Sep Call 4900 bet price is at 132 / 136.
You expect the UK 100 to rally over the coming weeks and therefore open a buy position (go long) of £10 per point at 136.
Over the next few weeks the UK 100 rallies. The latest UK 100 cash level is now 5100 and the UK 100 Sep Call 4900 bet price is at 275 / 279. Having reached a comfortable level of profit, you decide to cash in your gains by selling £10 per point at 275 (the sell price).
Result: You bought at 136 and sold at 275 - a 139-point movement in your favour which, at your stake size of £10 per point, nets you a tax-free profit* of £1,390 (275 - 136 x £10).
Alternative scenario: If however, the UK 100 had fallen, you would net a £10 loss for every point the option price moved lower up to a maximum of the price you paid x your stake; £1,360 (0 - 136 x £10).
Remember if you buy a Call option or sell a Put option, the maximum you can lose is the price you paid x your stake. However if you sell a Call option or buy a Put option, your losses are potentially unlimited, so make sure you have a risk management strategy in place.
Learn more about options spread betting at:
http://www.cityindex.co.uk/range-of-markets/options-spread-betting.aspx
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
About City Index:
Today more and more individual traders are discovering the benefits of derivatives, many of them through City Index trading platforms.
As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.
We constantly look to improve the performance of our platforms and expand our range of services. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, mobile trading platforms, and a high standard of customer service and support. For more information, visit http://www.cityindex.co.uk/.
SOURCE City Index
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