How to make money on vanilla options, Trading Vanilla Options | Learn to Trade with easyMarkets

How to Make Money FAST Trading Options

There are lots of more complex derivatives, but vanilla options are easy to understand and may offer good profit opportunities. What is a vanilla option? A vanilla option is relatively straightforward.

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It gives you the right to buy or sell a currency pair at a predefined price in the future. This is known as the strike price. For example, if you buy a call option that expires in six months, and if the currency pair price rises as will the value of that optionyou will be able to sell the option at any time before it expires to lock in your profit.

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Portfolio diversification Vanilla options are available for a large number of currency pairs, not just major currencies. Since you pay a lot less of for the option than you do for the currency pair position, then you have the opportunity to limit your losses if the pair moves in the wrong direction.

Think of this as insurance. Your risk is limited If you buy a call or put vanilla option, this gives you the right to buy or sell at the strike price.

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This means that at worst, your risk is the premium — which is a relatively small amount. However, if you sell an option, then you need to be careful — in this case, the buyer might exercise the option and obligate you to sell — in which case your risk is much higher.

Options offer high leverage Options may also give you higher leverage than you would get if you just bought or sold a currency pair.

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The cost of buying an option is related to the difference between the currency pair price and the strike price — rather than the absolute price of the currency pair. Since the difference is smaller than the total cost, you get greater leverage — which means that your profit opportunities may be greater.

Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose.

  • When selling options, however, a trader receives the premium upfront into his cash balance but is exposed to potentially unlimited losses if the market moves against the position, much like the losing side of a spot trade.
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  • Vanilla Options | SpringerLink