Options trading

The strike price of an option is the level at which you can execute it, which will dictate whether you earn a profit or loss from your position. It tells you how much you can buy or sell the underlying market for according to the terms of the option.

Buying a gold call option with a strike of $13,000, for instance, enables you to buy gold at $13,000. If gold rises above $13,000, you can execute your option and buy it for a discount. If it doesn’t, then the option is worthless.

A gold put option with the same strike, on the other hand, gives the holder the right to sell gold at $13,000. If gold is priced below $13,000, you can sell it for more than the current market price.

Explore all the options terminology you need to know.

Options are bought and sold on exchanges – just like futures – so to trade them in the open market you’ll need an account with an options broker. Alternatively, you can use your FOREX.com account to speculate on the price movements of options alongside thousands of other markets.

With FOREX.com, you trade options just like other markets – using CFDs. You can get exposure to the price movements of a huge range of options, covering 20+ markets and a full chain of strikes and expiries.

You’ll be able to go long on options to profit if their premium rises, or short to profit if it falls. If the option moves against you, you’ll make a loss.

Start options trading today with a FOREX.com account

Options work by enabling you to buy or sell a market at a predefined price, known as the option’s strike price. Buying a Dow Jones (Wall Street) call option with a strike of 34,000, for example, means you can buy the Dow at 34,000 – whatever price the index is currently at.

To get the right to buy the Dow at 34,000, you’ll pay a premium. And each option comes with an expiry date, after which it can’t be executed and becomes worthless. If you don’t want to use your option – say, because the index stays well below 34,000, so executing would earn you a loss – you can leave it to expire, and all you lose is your premium.

There are two types of options: calls and puts. Buying a call gives you the right to buy a market at the strike price and buying a put gives you the right to sell it.

As well as buying options, you can sell them. This means you’re giving someone else the right to:

• Buy a market from you at the strike price (if you’re selling a call)
• Sell a market to you at the strike price (if you’re selling a put)

In return, you’ll pocket the premium.