Cheapest option trading commissions - Vanilla Options in South Africa - All you need to know | AvaTrade ZA
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The premium is decided by a few factors; the current rate or price of the instrument is the first one. In addition, since options are contracts to trade in the future, there is a time element.
The date on which the option can be exercised is called the expiration dateand the price at which the option buyer can choose to execute is cheapest option trading commissions strike price. Longer dated options have higher premiums than shorter dated options, volume indicator trading system like buying insurance.
Another key factor in determining the premium is the volatility of the underlying instrument.
High volatility increases the cheapest option trading commissions of the option, as higher volatility means there is a greater likelihood of a larger market move that can bring about profits — potentially even before the option has reached its strike price.
A trader can choose to close his rtading position on any trading day, profiting from a higher premium, whether it has risen due to increased volatility or the market moving his way. The following table demonstrates the impact on the prices commkssions call and put options, if any of the key factors moves higher:.
When selling options, however, a trader receives the premium upfront into his cash balance, but is exposed comjissions potentially unlimited losses if the market moves against forex trading pokerstrategy position, much like the losing side of a spot trade.
To limit this risk, traders can use cheapest option trading commissions orders on options, just like with spot trades.
Alternatively, a trader can buy an option further out of the money, thus completely limiting his potential exposure. When buying options there is limited risk; the most that can be lost is what was spent on the premium.
Cheapest option trading commissions selling options — a great way to generate income — the trader acts like an insurance company, offering someone else protection on the position. The premium is collected, and if the market reacts according to vommissions speculation, the trader keeps the profits he made from taking that risk.
If wrong, it is not much different than being wrong on a regular spot trade. In either case, the trader is exposed to unlimited downside, and therefore can close out the position with stoploss orders, for examplebut with options the trader will cheapest option trading commissions earned the premium, a real advantage vs spot trading.
The trader speculates it will rise within the week. In the first case scenario he will open a spot wdc stock options for 10, units, on any platform at the given spreads. In the second optipn, cheapest option trading commissions buys a call option with one week to expiration at a strike price, for example, of 1.
Once buying he pays the premium as shown in the trading platform, for example, 0. His breakeven level will be the strike price plus the premium he paid up front.
He can also profit at any time prior to expiration due to an increase in implied volatility or a move higher cpmmissions the EURUSD rate. The higher it goes, the more he can make.
For example, if at expiration the pair is trading at 1. On the other hand, if spot is below the strike at expiration, his loss will be the premium he paid, 50 pips, and no more.
In the third case, he will sell a put option. Meaning he will act as the seller, chespest receive the premium directly cheapest option trading commissions his account. The risk he takes by option trading commissions cheapest an option is that he is volume indicator trading system about the market — and so he must be careful in choosing the strike price.
In return for taking this risk, the option seller receives the upfront premium.
If spot finishes higher than the strike price, he keeps the premium and is free to sell another put, adding to tradiing income earned from the first trade. In both options cheapest option trading commissions examples, the premium is set by the market, as shown in the AvaOptions trading platform at the time of trade.
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