What are options?
Consider one example. The first company sells petrol. Many aspects, including raw material cost, are the part of the cost price of petrol. In our example it will be oil. You know that price of fuel is not stable. For that reason, the company makes a decision to start using an oil options contract to lessen the risk of oil price increase. Let’s study the process of the option contract's working.
For instance, the cost of oil is $100 per barrel. The first company visits an exchange and enters into an option's contract with an intermediary to buy oil at $100 next month.
If the similar situation happens to a firm, it becomes obliged to pay the cost of the option contract. This cost has another name – the broker's option premium. For example, imagine the sum of option premium is equal to $10. In this case it is necessary to consider two variants of sequence of events. If one month later the oil price grows and exceeds to $200 per barrel, the first company having the option contract to buy oil at the price of $100 can on the basis of the contract use the option and purchase oil at the agreed $100 (the saving will be equal $100 per each bought barrel). However, if the oil price falls to $50, the first company will see no sense in purchasing oil at the $100 price because this product can be bought at $50 on the market. So, in this situation the company will not use the option and will pay only premium for the option to the broker.
An option means a kind of contract letting purchase or sell an asset at a pre-set price at a definite future time moment.
There are some special terms in the sphere of options' trading. The option price is an option premium. The expiration time means the certain future point after which an option becomes invalid. The purchase time means the time period of a trader's option's buying. The strike price means a target level that should be gone above or below by the asset opening price for the close in the money position.
There exist 2 types of options. These are call options and put options. Their other names are CALLS and PUTS. The first type let you purchase assets. The second type gives you a chance to assets. This popular trading tool has a lot of variants. In case of choosing trading with binary options, you are necessary to predict changes of the asset price (its growth or fall in comparison with the opening price. Other type - digital options give you an opportunity to make choice of strike prices. It let monitor the risks with more effectiveness. Foreign exchange options, other named fx options, give you a chance to exchange currencies as a preset exchange rate at a definite future time moment. The instrument also has strike prices.
With the help of this platform you have an opportunity to tell all kinds of the mentioned instrument. Take pleasure!