The Small Business Times

How To Use the Different Types of Options in London

The different types of options in London have been designed to cater for the needs of a wide range of traders. While some of these may be more suitable for experienced traders, others can be used by beginners. In this article, let’s look at the different types of options trading in London and how they can be used in trading.

FTSE 100 Index

One of London’s most popular options is the Financial Times Stock Exchange (FTSE) 100 index option. This option allows traders to speculate on the direction of the FTSE 100 index, which is also informally called the ‘Footsie’ and consists of 100 companies listed on the London Stock Exchange with the highest market capitalisation.

An FTSE 100 index option can be bought or sold. If traders think that the FTSE 100 index will rise, they will buy a call option. If they think the FTSE 100 index will fall, they will buy a put option.

The strike price of an FTSE 100 index option is the level of the index at which the option contract can be exercised. The expiry date is when the option expires and can no longer be traded. The premium is the option contract’s price, and it is paid by the buyer to the seller when the contract is entered into.

The main advantage of trading FTSE 100 index options is that they are very liquid, and it means that there are always many buyers and sellers, so it is easy to enter and exit a position. Another advantage of FTSE 100 index options is that they are very affordable, and the premium is only a tiny percentage of the value of the underlying index.

A disadvantage of FTSE 100 index options is that they are a high-risk investment. The price of the underlying index can rush, so there is the potential for significant losses.

FTSE 250 Index

Another popular type of option in London is the FTSE 250 index option. This option allows traders to speculate on the direction of the FTSE 250 index, which is the second-largest index on the London Stock Exchange. The FTSE 250 index represents the performance of the next largest 250 companies listed on the London Stock Exchange.

Like the FTSE 100 index option, an FTSE 250 index option can be bought or sold. If traders think that the FTSE 250 index will rise, they will buy a call option. If they think the FTSE 250 index will fall, they will buy a put option.

The strike price, expiry date and premium of an FTSE 250 index option are similar to those of an FTSE 100 index option.

The main advantage of trading FTSE 250 index options is that they offer exposure to a broader range of companies than the FTSE 100 index, which means they can be a more diversified investment. Another advantage of FTSE 250 index options is that they tend to be less expensive than FTSE 100 index options.

A disadvantage of FTSE 250 index options is that they are less liquid than FTSE 100 index options, and this means that it may be more challenging to enter and exit a position. Another disadvantage of FTSE 250 index options is that they offer less exposure to the largest and most established companies listed on the London Stock Exchange.

Mini-futures

Another type of option available in London is the mini-future. Mini-futures are designed to provide exposure to the underlying asset without the need to take physical delivery. These are popular with investors who want to speculate on the price of an asset but do not want to own it.

Mini-futures are available on many assets, including stock indices, commodities, currencies and interest rates. The most popular mini-futures in London are those based on the FTSE 100 index, the EURO STOXX 50 index and the Brent Crude oil price.

The main advantage of mini-futures is that they are very versatile, and they can be used to speculate on the price of an asset in both rising and falling markets. Another advantage of mini-futures is that they offer exposure to a broader range of assets than traditional futures contracts.

A disadvantage of mini-futures is that they are a high-risk investment, and this is because the underlying asset price can rush, so there is the potential for significant losses. Another disadvantage of mini-futures is that they are not suitable for everyone, and investors should be aware of this risk involved before entering into a mini-future contract.