5 Strategies That You Can Use to Trade Options in Belgium
Options offer traders a cost-efficient way to go short or long with limited downside risk. Options also give investors and traders more complex and flexible strategies, which are potentially profitable under any market condition. These are among the benefits that traders can access by trading options in Belgium.
Saxo Belgium allows traders to diversify their portfolios by trading options across a wide variety of assets. These assets include stocks, futures, indices, commodities, and interest rates. Keep reading to learn more about the strategies that you can use to trade options on Saxo Belgium.
1. Long Call
The long call allows traders to capitalize on the rise of the underlying asset’s price. A long call is the simplest strategy in options trading. But how does a long call work?
When you expect the price to rise, you may buy a call option, which gives you have the right to purchase the underlying asset for a set amount during a specific period.
Traders buy a long call if they think the underlying asset’s price will rise. However, they can sell the call any time before the options period expires. The maximum risk of this call is the amount of premium paid.
2. Long Put
When you purchase a put option, you have the right to sell the underlying asset for a predetermined amount during a specific period. Traders buy this option when they believe that the price will fall. The long put allows traders to profit from a decline in the price of an underlying asset.
Traders purchase a put option to protect their stock against price drops. Speculators also purchase a put option for shares that they don’t own so that they can profit from the price drop. If you don’t own the shares you bought a put on, the maximum risk will be the premium you paid.
3. Covered Call
Selling an option is different from buying one. When a trader sells an option, they assume a duty to deliver the underlying asset. However, when you buy an option, you acquire a right.
Once you sell a call, you commit to potentially delivering the underlying asset at the strike price you have sold. In such a case, your profit is the amount premium you receive for assuming the obligation. You should never sell a call for an underlying asset that you don’t own because you will be obliged to deliver the assets at the strike price.
Selling calls on existing securities offers additional returns. If the security rises, you sell the securities that you own. In case you don’t have to deliver, you profit from the premium you received. However, there is considerable risk if the price falls because the premium received will only cover a small portion of the price drop.
4. Long Call Spread
A long call spread allows traders to anticipate an increase in the underlying asset with a smaller capital compared to a single call option. Though profits are limited, they are still attractive.
This strategy combines purchasing and selling a call. The strategy involves buying a call and simultaneously selling a call whose strike price is higher. Traders use this strategy when they expect the price of an underlying asset to rise but also want to take a delivery duty at the higher strike price.
With this call, your maximum risk is the amount of premium you paid and will only occur if the underlying asset’s price falls below the strike price of the call option.
5. Long Put Spread
This strategy involves buying a put option and simultaneously selling a put with a lower exercise price. Traders who expect the price to fall purchase a put but also take advantage of the low price by taking a purchase obligation at the lower price.
The maximum risk of a long put spread is the amount of premium paid. You will realize the loss if the underlying asset’s price rises above the strike price.
Trusted Belgium brokerages offers a variety of strategies that both new and advanced traders can use to trade options. Both active traders and investors can diversify their portfolios by trading options.