Writing options is one of the most popular ways to trade in the markets. Many experts such as market analysts, traders, and brokers buy and sell options daily.
You can do options trading through financial instruments such as stock indices, commodity indexes, equity shares, exchange-traded funds or commodities. Options trading has become extremely popular because it allows an investor to take advantage of rising and falling markets without actually having to buy or sell any stocks.
The best strategy
The best strategies for options trading vary from person to person, depending upon an individual’s goals and level of expertise in dealing with highly volatile swings in prices.
If you want to get access to all kinds of underlying assets (stocks), then LEAPS (Long-term equity anticipation securities) is what you should opt for. The best strategy to use depends upon an investor’s risk tolerance, trading capital and objectives.
2 Basic rules while trading in options
- Don’t invest money you cannot afford to lose. If it’s possible, only invest in the option with expiry dates that fall within your timeframe (three months or less). Also, make sure you close out the position before the expiration day.
- Never hold on to any positions (open or closed) past expiration date because this would mean losing 100% no matter how much it created a profit/loss.
Picking the right strike price
It is essential to make sure that you pick a strike price of an option correctly because this would determine how profitable or unprofitable your investment would turn out to be. For example, on the purchase of call options: if the share rises by more than what you paid for (i.e., the difference between current and buy-price), then you will earn a profit on the transaction.
However, even if there is no rise in prices, but instead, it falls below your purchase price, you will still break even as opposed to losing all of your money spent on buying those call options. The overall goal should be to buy at such points where the potential profits outweigh the risks involved by a good margin.
London options trading
The London options trading industry has become very popular due to the London Stock Exchange (LSE), London Metal Exchange (LME) and London Bullion Market Association (LBMA). London is considered the world’s largest financial centre, making it ideal for traders.
The best time to trade in London is during the last hour, i.e., between 4:00 pm – 5:00 pm GMT, because this is when most banks close their positions before closing time.
It means that there are no counterparty risks involved in cases where someone defaults on payment or trades outside the system. It also makes sense to buy an option at this time because all London-based exchanges stop taking orders for 15 minutes before they close.
This pause in trading gives London-based traders an edge over their counterparts because they get enough time to analyse the market (and adjust their positions). London is known for its options industry. Many brokers offer London-based binary options, while some offer London-based Vanilla Options.
London-based Binary Options are also known as Fixed Return Options (FROs). London-based Vanilla options can be bought and sold quickly. London is considered the best place for trading in options because of the number of financial markets and their high liquidity levels.
London accounts for a significant share of London Stock Exchange, London Metal Exchange, London Commodity, London Bullion Market Association etc. Many traders believe that London-based Binary Options are similar to forwarding contracts available in London on major indices.
London is also reviewed as one of the most important financial centres on the planet. It ensures accessibility to many clients/traders on a single platform. London Stock Exchange facilitates access to around 1 billion pounds every day, with about 2 million transactions being carried out during this period (and covering almost all sectors).
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