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Trends & Analysis
News

Crude falls for 4th straight day on demand woes

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Nvidia’s stock surges past $1,000 on strong Q1

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Will mighty Microsoft build on its 2024 gains?

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USD gains amid Fed rate cut speculations

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Is the silver squeeze back?

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Li Auto’s stock hits a speedbump on Q1 results

Trends & Analysis
News

Crude falls for 4th straight day on demand woes

News

Nvidia’s stock surges past $1,000 on strong Q1

News

Will mighty Microsoft build on its 2024 gains?

News

USD gains amid Fed rate cut speculations

News

Is the silver squeeze back?

News

Li Auto’s stock hits a speedbump on Q1 results

Option definition

Options are some of the most widely traded derivatives contracts globally, and come in two main varieties, calls and puts. Each of these options gives the holder the right, but not the obligation, to buy (call), or sell (put) an asset at a predetermined date, and at a particular price, known as the strike price. Pricing options involves the news of metrics known colloquially in the market as ‘the Greeks’. Options are traded in all markets, but are especially popular in the forex and equity markets.

Types and styles of option

Discussion of options nearly always deals with the option style known as European. Despite the name, these are traded equally worldwide, though American, Asian and even Bermudan styles also exist. These other styles are relatively thinly traded. In a European option the contract can only be exercised on a single set date, whereas an American option can be executed at any time. Asian options can be traded on a range of fixed dates.

The two basic or ‘vanilla’ options are calls and puts. From these two simple derivatives, much more complex strategies such as collars, condors and straddles can be formed. Options are either at-the-money – with a current market price near or at the strike price, out-of-the-money – when the current market price is either far above (for a put) or below (for calls) the strike price, or in-the-money – when the market price is below (puts) or above (calls) the strike price, and so assuming no market movements, can be usefully exercised.

Uses of options

Options are some of the most versatile financial instruments available, with complex strategies created by layering calls and puts to form unique payout profiles. Some of the most common uses are below:

Hedging: Options can be used to protect against market downturns, e.g. buying out-of-the-money put options on a single stock or relevant index to offset potential losses in an equity portfolio. Far out-of-the-money options are often relatively cheap, particularly in less volatile markets.

Speculation: Options are ideal tools for expressing views on future market directions as combinations of calls and puts can be used to create very precise payout profiles. For example a trader who expects an index to trade between a certain range can use options to create a condor or straddle strategy that will pay when the market remains rangebound. This type of strategy is otherwise very difficult to execute.

Start trading with ADSS

ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.

 

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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.

ADS Securities LLC (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates as a trading broker for Over the Counter (“OTC”) Derivatives contracts and foreign exchange spot markets. ADSS is a limited liability company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.

The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.

ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.