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Overview of Options CFDs
Options CFDs trading invloves leverage, meaning any potential profit or loss will be multiplied. For example, if you trade with leverage of up to 1:5, 100 € can have the effect of up to 500 € in capital.
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Trade
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Set price alerts and Stops such as Stop Loss and Trailing Stop to manage your risk. To avoid slippage completely, use our Guaranteed Stop and the position will be closed at the exact rate you define.
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What is Options trading?
Options CFD trading involves the trading of Contracts for Difference on option contracts that grant the right to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specific timeframe. Traders that engage in options CFD trading speculate on option prices which are influenced by, among others, the price movements of the underlying assets. These options CFDs offer leverage and allow investors to speculate on both rising and falling markets without owning the underlying asset.
Steps to start
Follow the 4 steps below:
- Choose your Options trading method
- Find out more about the Options market
- Open and verify your Plus500 account
- Plan your Options trading strategy
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Options FAQ
When you trade options, you are speculating on the future price (strike price) of an underlying instrument such as a stock, index or commodity. Plus500 offers two types of Options CFDs: Call options and Put options. You can buy or sell both types. If you enter a position in a Call/Put option, you are essentially entering into a contract for the price that an underlying instrument will reach (or exceed) by the expiration date. Your profit or loss is determined by the movement of an option's price. You are not buying or selling the option itself.
Puts – A buyer/seller of a “Put option” expects the price of the underlying instrument to fall/rise.
Calls – A buyer/seller of a “Call” option expects the price of the underlying instrument to rise/fall.
For example, here's a breakdown of an option on Meta stock:
Call 125 | Nov | Meta
- Call – The type of option (can be Call or Put).
- 125 – The strike price, that is, the price you assume the underlying instrument will exceed on the expiration date.
- NOV (November 2018) – The expiration date of the option.
Plus500 offers a wide range of Call/Put options CFDs. For a list of available options, click here.
You may experience greater volatility – percentage changes in options tend to be much more significant, meaning they can either result in higher returns or higher losses.
You can diversify your positions by trading at different strike prices. A strike price is defined as the rate the underlying instrument must reach at expiration for the trade to be profitable. We offer several Call/Put option CFDs for each underlying instrument.
Plus500 only offers options CFD trading. These options CFDs give you exposure to changes in option prices. They are cash-settled and cannot be exercised by or against you, nor can they result in the delivery of the underlying security. Therefore, when the option CFD reaches its expiration date, the position will be closed.
Leverage on Options CFDs enables traders to gain exposure to a larger market position by using a smaller initial margin. For instance, with 1:5 leverage, a trader can open a position worth €500 by depositing €100 as margin.
While leverage can enhance returns when the market moves in the trader’s favor, it also increases the potential for losses if the market moves against the position. Losses may exceed the initial margin, and it's important to understand the associated risks.
Traders should use leverage cautiously and ensure it aligns with their risk tolerance and investment objectives.
Every option has a predefined expiry date. Typically set for one month ahead. As opposed to regular options traded in the market, Option CFDs' expiry date is set a few days before that of the underlying options. This is due to very low trading activity on the related contract at this time.
On the date of expiry, the option CFD’s last price is based on the last available rate (and not zero).
The main factors determining the price of an option include: (a) the current price of the underlying instrument, (b) the level of volatility in the market, (c) the expiry date and (d) the option’s intrinsic value, defined as the value any given option would have if it were exercised at present time.
In addition, option prices are heavily influenced by their supply and demand in the market.
Prices of options CFDs are referenced to the price movements of the options. When financial markets experience high volatility, Options CFDs’ percentage change tends to move more significantly than the underlying stock or index, due to an increase in implied volatility.
Example 1: Alphabet (GOOG) is trading at $1,000, and you buy a Call option CFD of $1,100 for one month from now at $70. Two weeks later, Alphabet’s price goes up to $1,050, and the option CFD’s price is now $90. As such, your potential profit is 90-70 = $20 per option CFD. This is equivalent to a yield of 28% (20/70 = 0.28), which is much greater than if you would have bought an Alphabet share at $1,000, and profited 5% (50/1000 = 0.05).
Example 2: Alphabet (GOOG) is trading at $1,000, and you buy a Call option CFD of $1,100 for one month from now at $70. Two weeks later, Alphabet’s price goes down to $950, and the option CFD’s price is now $50. As such, your potential loss is 50-70 = -$20 per option CFD. Equivalent to a 28% change of in the price (20/70 = 0.28), as opposed to having bought an Alphabet share at $1,000, and lost 5% (50/1000 = 0.05).