Understanding long-term options: How to buy and manage long-term options on the Saxo platform Understanding long-term options: How to buy and manage long-term options on the Saxo platform Understanding long-term options: How to buy and manage long-term options on the Saxo platform

Understanding long-term options: How to buy and manage long-term options on the Saxo platform

Options 10 minutes to read
Koen Hoorelbeke

Options Strategist

Summary:  This guide provides step-by-step instructions on how to purchase and manage long-term options on the Saxo platform, complete with detailed screenshots and tips for using tools like the risk graph to assess potential profits and losses.


Introduction

Welcome to our practical guide on navigating the Saxo platform to purchase and manage long-term options. This tutorial will walk you through the process using detailed steps and screenshots from the platform. Please note that all examples provided are for educational purposes only, and the prices shown are historical and not indicative of current market conditions.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.


Step 1: Accessing the trading interface

Begin by logging into your Saxo account. Once you are logged in, navigate to the main trading interface by clicking on the "Trading" tab at the top of the page. This area is your gateway to placing and managing trades.

Step 2: Locating the stock or index

Use the search bar to find the specific stock or index for which you wish to buy options. For instance, if you're interested in NVIDIA Corporation, type "NVIDIA" or "NVDA" into the search bar. Click on the search result to go to NVIDIA’s specific trading page.

Step 3: Opening the option chain

Once on the NVIDIA trading page, locate the "Option Chain" tab. This tab will display all available options for NVIDIA. It is typically found next to other tabs like "Overview" and "Charts" near the top of the page.

Step 4: Selecting the expiration date

Within the option chain, you can view options sorted by expiration date. To find long-term options, look for those with expiration dates that are farther out, such as one to three years into the future. For our example, you might select an option that expires in June 2025.

Screenshot Guide:

  1. Trading tab: This is where you access the main trading interface.
  2. Option Chain tab: Click here to view all available options for the selected stock.
  3. Search bar: Use this to find NVIDIA or any other stock.
  4. Expiration date filter: Use this dropdown to filter options by their expiration date, such as selecting "June 2025."

The screenshot below illustrates these steps with annotations corresponding to the descriptions above. By following these initial steps, you can efficiently navigate to the right area of the Saxo platform to begin exploring long-term options for your investment strategy.

Step 5: Analyzing the trade ticket and placing an order

After selecting a long-term option from the option chain, clicking on the 'Ask' price will open a trade ticket. This is where you will make the necessary adjustments before purchasing your option. Here's how to proceed with the trade ticket details:

  1. Type of order: Ensure the order type is set to 'Buy to Open' if you are initiating a new position. This action signals that you are buying to open a new long position in the option.
  2. Quantity: Specify the number of contracts you wish to purchase. Each contract typically covers 100 shares of the underlying stock, so consider how much exposure you want to have.
  3. Expiration: Verify that the expiration date of the option matches your investment timeline. For LEAPS, this would usually be one to three years into the future.
  4. Strike price: Confirm the strike price. This is the price at which you can buy (call) or sell (put) the underlying stock if you decide to exercise the option.
  5. Call or put: Select 'Call' if you are buying a call option, which gives you the right to buy the stock at the strike price before the option expires.
  6. Price: The price field shows the current asking price per share for the option. This is what you will pay per share for the contract.
  7. Placing the order: Review all the information to ensure it aligns with your trading strategy. When ready, click the 'Place Order' button to execute your trade. This will send your order to the market.

Important Information in the trade ticket:

  • Premium: The total cost of the option is known as the premium, displayed clearly on the trade ticket. This is your financial commitment when buying the option.
  • Trade fees: Note the associated trading fees, which will affect the total cost of the transaction.
  • Cash available: Check your account to ensure you have sufficient funds to cover the premium and any fees.

Screenshot guide:

The screenshot below highlights the essential areas of the trade ticket:

  • The Type of order setting ensures you are opening a new position.
  • The Quantity field where you adjust how many contracts you want.
  • The Expiration date confirms when the option will expire.
  • The Strike price indicates the price level at which the option can be exercised.
  • The Price per share or per contract shows how much you will pay.
  • The Place order button is where you will click to finalize the purchase.

Step 6: Analyzing potential risks and rewards using the risk graph

Once you have selected a long-term option, you can further analyze its potential risks and rewards using the risk graph feature on the Saxo platform. This powerful tool visually represents the possible outcomes of your option strategy based on different price movements of the underlying asset. Here's how to access and use the risk graph:

  1. Accessing option strategies:
    • Return to the option chain for the selected stock or index, in this case, NVIDIA.
    • Above the list of options, click on the "Strategies" button. This section allows you to set up and analyze complex option strategies, but it can also be used to examine a single option (important note: this window can NOT be used to enter a single leg order, for that you need to use the trade ticket discussed earlier on).
  2. Setting up the trade:
    • Ensure the "Buy/Sell" field is set to "Buy to Open" if you are considering a new position.
    • Choose the expiration date and the strike price of the option you are interested in. For our example, you might select a strike price of 850 with an expiration in June 2025.
    • Specify whether it is a "Call" or "Put" based on your strategy.
  3. Viewing the risk graph:
    • Once your option details are set, locate and click the button or link that says "Show risk graph" if the graph is not already displayed. Clicking it should toggle to "Hide risk graph," revealing the risk graph associated with your chosen option.
    • This graph visually represents your potential profit or loss at various stock price levels at expiration. It's a vital tool for understanding the maximum risk (the amount you could lose) and the potential reward (the amount you could gain).

Using the risk graph:

  • The x-axis of the graph represents the range of possible prices for the underlying stock at the option's expiration.
  • The y-axis represents the profit or loss for the option position.
  • Look for key points such as the break-even point, which is where the line crosses the x-axis, indicating no profit or loss.

Screenshot guide:

  • Strategies button: This is where you switch to a more strategic view of options.
  • Trade setup area: Here, you set the specific details of your option purchase.
  • Risk graph visibility toggle: Use this to show or hide the risk graph, which provides a visual analysis of potential outcomes.

By examining the risk graph, you can gain insights into how changes in the underlying stock’s price by the expiration date will affect the profitability of your option. This information is crucial for making informed decisions, ensuring that your investment aligns with your risk tolerance and financial goals.

In conclusion, understanding and utilizing the risk graph on the Saxo platform can significantly enhance your ability to manage long-term options effectively. This tool aids in visualizing potential outcomes and helps tailor your trading strategies to better meet your investment objectives.

Want to know more? Check out these pages:
Understanding long-term options for strategic portfolio management  An in-depth guide to understanding the benefits and strategies of long-term options.
How to - long-term options for strategic portfolio management   Step-by-step instructions on how to implement long-term options in your portfolio.
Long-term options for strategic portfolio management - case study Alex   A detailed case study exploring Alex's approach to using long-term options.
Long-term options for strategic portfolio management - case study Sarah   An analysis of Sarah's successful implementation of long-term options.
Guide on long-term options for strategic portfolio management  The long-term options guide home-page.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
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