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A manual for purchasing call and put options in Australia

When it comes to options, there are two types that traders will use – calls and puts.

A call option is an agreement between two parties that gives the holder the right, but not the obligation, to buy an asset at a specified price within a specific period. Meanwhile, a put option is an agreement that gives the holder the right to sell an asset at a specified price within a specific period.

How to trade call options

Find an asset to buy

The first step is to find an asset that you want to buy. It could be a stock, commodity, currency or even a cryptocurrency. Once you have found an asset, you will need to research it to find out how it has been performing and what factors could affect its price.

Choose a broker

The second step is to choose a broker that offers call options. Many brokers offer this type of trading, so it is essential to compare them before deciding which one to use. It would be best to look at the fees they charge, the assets they offer and whether a financial authority regulates them.

Open an account

Once you have chosen a broker, you must open an account. It is usually a simple process; you must provide personal information and choose a password.

Deposit funds

The next step is to deposit funds into your account. You can do this using a credit or debit card, bank transfer or even PayPal, depending on the broker. Once the funds have been deposited, you can start trading.

Place a trade

Now you are ready to place a trade. To do this, you must choose the asset you want to buy, the amount you want to invest and the expiration date. Once you have placed your trade, it will remain open until the expiration date. If the price of the asset increases, you will make a profit. However, if the price falls, you will make a loss.

How to trade put options

Find an asset to sell

The first step is to find an asset that you want to sell. This process should follow that of finding a call option to buy.

Choose a broker

The second step is to choose a broker that offers put options. Many brokers offer this type of trading, and you should look at the same things as when choosing a broker to buy call options.

Open an account

Once you have chosen a broker, you must open an account. You will still need to supply the brokerage with personal information and choose a password.

Deposit funds

The next step is to deposit funds into your account, which you can do using a credit or debit card, bank transfer or even PayPal, depending on the broker. Once the funds have been deposited, you can start trading.

Place a trade

Now you are ready to place a trade. This process is also the same as that with buying a call option. However, if the price of the asset decreases, you will make a profit, and if the price increases, you will make a loss.

Key points to remember

  • The strike price is what the holder pays when buying (in the case of a call option) or gets when selling (in the case of a put option) the underlying asset.
  • The premium is the fee that the holder pays for the right to buy or sell the asset.
  • The expiration date is when the trader can no longer trade the option as it has expired.
  • If the underlying asset’s price is above the strike price at expiration (for a call option) or below the strike price at expiration (for a put option), then the option is said to be in the money, and the holder will make a profit.
  • If the underlying asset’s price is below the strike price at expiration (for a call option) or above the strike price at expiration (for a put option), then the option is said to be out of the money, and the holder will make a loss.
  • Options are a leveraged product, meaning you can get exposure to an asset for a fraction of the cost of buying it outright. This leverage can both increase your profits and losses.
  • Options are risky, and you should always understand the risks before trading.

You can trade options with Saxo; visit their website here.

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