We’ve run through everything you need to know about this investment means. After all, If done right, it can give you a huge return. So, is it worth your time?
We’ll be answering this question below. We’ll also be looking at how you can trade US options down under, and the best places to do this.
What Are Options?
If you’re new to investing, trading options can be tricky. They are contracts that either let you buy or sell an instrument during a specific period at a predetermined price. The instrument can be a range of things, including a
You’ll have to be familiar with call options and put options. Call options are when you buy shares during a fixed period, while the latter is when you sell shares during this time frame. This is all done on the Options’ market.
As mentioned, you’re selling/buying the contract during a given period. So, you can walk away from the contract if you want to. This makes it a low-risk investment.
The amount you’re paying for the options is nothing but a percentage of it. This is known as the premium. In the end, you can make money by betting on whether its value will go up or down.
Although it’s not as straightforward as other investment means, options are known to yield quite a bit of cash.
An option’s strike price is the predetermined amount you’re buying or selling the security for. As a result, many people confuse it with premiums. We’ll look at the differences in-depth, below.
What Are Call Options?
Call options let you buy several stocks for a strike price, during a certain period. It can either be 30 days or even a week. Although the number of stocks you buy can differ, it’s almost always a 100 per contract.
Hopefully, in the given period, the security’s market value would rise. This happens quite a bit, but depending on how volatile the market is, the opposite could easily take place. For example, you could pay a strike price of $5 for stocks that are $200. In 30 days, the stocks would have appreciated to $215. As you bought 100 stocks with your contract, your $10 profit becomes $1000.
You may be wondering where premiums come into play. Premiums are the down payment you’re making for the contract. You’ve reserved it so when you pay the strike price, you’re making the full payment.
What Are Put Options?
To make it easier, think of put options as the opposite of call options. These let the investor obtain a contract when a premium is paid. Like their counterpart, you’re selling a number of stocks. Usually, it is 100. Like call options, you can sell the put at any given time, during the designated period.
You’ll also be selling the shares at a strike price. However, you want the securities to depreciate.
Let’s elaborate. You could buy a put for $5, with a stock price of $100. When you sell it, the stock might be $85. You’ll be making a $10 profit as your strike price is above the market rate. As you bought 100 stocks per contract, you can make a $1000 profit.
How Do You Trade US Options From Australia?
If you trade several securities, you may be wondering if you can trade American ones as well. It’s one of the best things you could do as the US has some of the largest companies in the world. The answer is yes, but you’ll have to be specific about the broker you’re working with.
If you’re a US citizen in Australia, all it takes is a few forms. You’re most likely not one. So, you’ll have to work with a broker registered in the States. Whether the broker will allow this depends on your nationality. Your country may have strict trading laws, after all.
Most likely, you won’t be able to send the needed documents through email. Instead, you’ll have to post them. This may not be possible depending on where you live.
What Brokers Should You Use?
Since your ability to trade options depends on the broker you’re using, we’ve summarised a couple of services.
IG is one of the best online brokers you could use. They’re known for their detailed educational centre. This lets you easily study up on options trading, which you may find confusing. Their fees are noteworthy as they don’t have any! IG doesn’t charge anything when you withdraw or deposit cash. However, you’re charged an inactivity fee. You don’t have a minimum deposit though, which is a plus. As of now, there are 6 base currencies to use. The broker is UK based but is regulated in the States.
HighLow is a renowned broker for binary options. Binary options are variants of traditional binary trading. HighLow is known for its mobile app. It’s very straightforward, which is appreciated. It has a minimum deposit, but it’s not too low either. There is a range of options you can trade. As a result, you can make a lot of money.
As you can see, trading options is a great investment move. It’s a contract you can buy and sell. The contract is for a range of securities, so you have nothing to worry about. However, you’ll have to buy and sell it during a specific period.
When buying a contract, it’s called a call option, and you’d want your stocks to appreciate. When selling a contract, it’s called a put option, and you want your stocks to depreciate. All in all, you can make quite a large profit as everything is usually 100x.
Yes, you can trade US stocks, but only if you use a broker registered in the US. So, what do you think? Will you be considering any of these trading options?