Options FAQs
Questions answered about Options
No! There are similarities but many differences. Vanilla options are a professional trading instrument. Some examples include:
- payouts – in binary options (if the trader wins) payout amounts are fixed, whereas with vanilla options the amount has no limit
- expiry dates – vanilla options provide full flexibility and tailored by the trader however binary expiries are typical in minutes or even less
- execution – our traders can exercise their option with no obligation at any time within the life of the contract, this is not the case for binary traders, who have no option once a contract is entered into.
Vanilla options are simply a different way of trading currencies and commodities. With easyMarkets vanilla options you are not charged rolling fees and can never be stopped out. Your risk is limited to your investment (the premium) in the position you have opened, whereas you potential profits are unlimited. Your positions can be closed at any time up to the expiration date.
Forex currency pairs can be traded as vanilla options, plus metals and commodity crosses.
Options are used to speculate on a variety of market characteristics such as future exchange rates and price volatilities, hedging and even contract time decay.
Buying a Call gives the holder the right but not the obligation to buy a product pair at a specific date and strike price in the future. In order to do so, the holder must pay a premium up front to the option seller. Unlimited profit is earned as the underlying price moves higher. The risk is restricted to the investment in the premium.
The seller becomes the “writer” of a Call option and is paid a premium up front. The writer must honour the terms of the option contract with the profit is limited to the premium initially received. The risk is unlimited should the market move against the seller of the option.
Buying a Put involves paying a premium to buy the right to sell. The holder of a Put option will have an unlimited profit on the upside once the spot price moves below the breakeven point, with the risk limited to the premium paid.
The seller becomes the “writer” of a Put option and is required to honour the terms of the option contract. The seller receives the premium up front, and is the maximum profit available. Risk is unlimited based on the market moving below the breakeven point.
This is the price, predetermined by the trader, where the product pair will be bought (in a call) and sold (in a put).
This is the time and date determined by the trader, at which the option contract will expire. Positions can be opened or closed at any time before expiry. Longer expiry dates have a higher premium.
Strategies are free to use at your own discretion, and are available in the easyMarkets strategies marketplace. Strategies provide pre-set parameters such as: call/put, buy/sell, strike price, expiry date, and amount.
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