Learn the basics of how to trade Stock Options with Saxo Capital Markets UK.
Know what you want
Before you begin trading options it’s critical to have a clear idea of what you hope to accomplish. Options can play a variety of roles in different portfolios, and picking a goal narrows the field of appropriate strategies you might choose. For example, you might decide you want more income from the stocks you own. Or maybe you hope to protect the value of your portfolio from a market downturn. No one objective is better than another, just as no one options strategy is better than another—it depends on your goals.
And how to get it
Once you’ve decided upon an objective, you can begin to examine options strategies to find one or more that can help you reach that goal. For example, if you want more income from the stocks you own, you might investigate strategies such as writing covered calls. Or, if you’re trying to protect your stocks from a market downturn, you might think about purchasing puts, or options on an index that tracks the type of stocks in your portfolio.
More than just a broker
Once you’re ready to invest in options, you may need to consider a broker. Your broker may offer helpful advice as well as execute your trades. Some brokers go further by working with clients to ensure that options trading fits into their individual financial plans. They also advise clients about potential objectives and strategies, and outline the risks and benefits of various transactions.
NOTE: Watch the margins - Some brokers require that certain options transactions, such as writing uncovered calls, take place in a margin account. That means if you write a call, you’ll have to keep a balance in your account to cover the cost of purchasing the underlying stocks if the option is exercised.
If the value of the assets in your margin account drops below the required maintenance level, your broker will make a margin call, or notify you that you need to add capital in order to meet the minimum requirements. If you don’t take appropriate action, your broker can liquidate assets in your account without your consent. Since options can change in value over a short period of time, it’s important to monitor your account and prevent being caught by a margin call.
Source: The Options Industry Council otherwise known as OIC