Option has a particular significance in relation to IG's platform. Here, we define option in general investing and explain what it means to you when trading with IG.
CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Option definition
An option is a financial instrument that offers you the right – but not the obligation – to buy or sell an asset when its price moves beyond a certain price with a set time period.
They exist in the form of a contract, between the writer and the holder. The price at which the holder can exercise the option is referred to as the strike price.
There are two types of option:
- Calls give the holder the option to buy an asset at or above the strike price
- Puts give the holder the option to sell an asset at or below the strike price
In options trading, the writer of the option makes a profit if the asset involved does not meet or move beyond the strike price, because the holder has to pay a premium in order to buy the option. The holder makes a profit if the asset’s price moves beyond the strike price by more than the premium they initially paid.
Options tend to trade in lots, with the size of the lot varying depending on the type of option. In equity options, for instance, each contract represents 100 shares of the stock underlying the option.
Options can be used to both speculate on the movements of markets and hedge against already open positions.
With IG
CFD products offer the ability to trade on the price movements of a variety of options in different markets.
Visit our options trading section
Visit our options trading page for more information.
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