Belgium’s listed options are widely used in investment strategies. Options, also known as derivatives, are generally “derived” from another entity on which they are based. The derivatives market has changed significantly since the early days and listed options can now be traded through electronic exchanges
Investors use options to speculate on whether the price of an underlying security will go up or down without owning the stocks themselves. A particular options price depends on the underlying asset’s price at any given time, so if you own a stock, getting rid of this stock will not affect your position in the option.
Why use listed options trading?
An option is a risk management tool that speculates price movements without allocating the entire value of the position for one share. Saxo Belgium is ideally positioned to help you navigate it, thanks to a combination of innovative platforms and flexible product offerings.
Call and put options give you a right to buy or sell a security at a specific price. A put option presents the freedom to sell the security at a particular price, while the call option bestows the right to buy it.
Options can also be written (sold) by investors to collect premiums (cost) at expiry and then reduce the cost of buying the asset itself. Options act as a hedge against existing positions in an investors’ portfolio.
Types of Options
Options strategies are used by some investors to generate extra income or to hedge one’s portfolio. Four main options comprise the techniques of trading: calls, puts, spreads, and combinations.
Call options present to the buyer the right but not an obligation to buy a specific share at any point before the option expires. Instead, the buyer pays the seller for this right. It is called an “exercise price” for index options, whereas for stock options, it’s known as a “premium.”
Puts are offered in much the same way but give the owner the right to dispose of underlying assets at a fixed price before the expiration. Thus, while buying a call option is often considered bullish on the market, buying a put option is generally considered bearish.
A spread allows investors to have both bullish and bearish positions with one single contract. For example, an investor may simultaneously buy a call option and sell a put option with the same strike price and expiration date.
A combination, or “synthetic position,” comprises two or more options that together mimic the payoff of another strategy. For example, a popular combination is called a straddle: an equal number of puts and calls are acquired at the same strike price and same expiration date.
Advantages of Listed Options Trading in Belgium
Overall, you can see that Belgian listed options trading has strong potential. It operates on low-margin requirements that are not as high as those of other exchanges, and the fees are considerably lower.
Some benefits of options trading in Belgium include:
- a competitive market for liquidity providers and an efficient hedging infrastructure to sell short term volatility;
- low margin requirements resulting from a high standard of financial regulation that ensures investor protection
- a central counterparty clearing system that guarantees the execution of all transaction instructions and ensures prompt settlement
- an open rulebook which can be easily understood by investors and is continuously updated to include more products
- strict requirements on financial reporting, corporate governance, and transparency
- a highly diverse market structure that provides investors with the choice of several execution venues, providing the opportunity for investors to choose the best venue depending on their needs.
Today’s world market players deal with multiple options on a single stock, an index, and a future opportunity. Moreover, as the market continues to evolve, investors and companies employ the use of more derivatives.
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