Call options may be regarded as deposits to lock in future purchases at a pre-determined price while puts can be seen as insurance against surprises, i.e. facilitating the divestment of assets should their value fall. The price for this buyer assurance is the premium – the cost of the options contract itself. And because options confer rights and not obligations, the most that buyers can lose is their premium. By contrast, the party on the other side of the contract – the call or put seller – is obliged to buy or sell if asked and can thus lose far more than the price of the premium.
One of the most flexible of the derivative instruments that financial markets offer, options are contracts that give buyers the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a specified date. The right to buy is known as a call option while the right to sell is a put option and both may be taken out of a multitude of underlying assets, including currencies, equities, bonds and commodities.
For FX options, our SaxoTraderGO platform provides the possibility to both buy and sell contracts, giving clients the opportunity to express a directional view in two different ways. FX options not only enable clients to express a directional trading view but also offer more alternatives in relation to controlling risk, in addition to a traditional stop loss order.
In everyday investing, calls and puts allow investors to benefit from different market situations. They can be used to gain greater exposure, to protect positions from certain risks or to simply take advantage of market uncertainty and increased volatility.
Saxo Group's strategy team publishes a wide array of timely market analysis and research, providing valuable background for options trading decisions, be they in equity, forex, bond or commodity markets.