What is an Option?

An option is a right to buy or sell an underlying value or a duty to take or deliver the underlying value. This can be a stock, commodity, index or currency. With options, you can achieve a high return with a relatively small investment. Options are also a useful investment tool to cover the risks in your portfolio.

Why invest with options?

Options allow you to potentially achieve a high return with a relatively small investment, due to the leverage. Options are versatile and need not if used properly, be any riskier than shares.  On the contrary, you can use them to hedge the risks in your portfolio or to gain additional returns on your shares.

Buy options with BinckBank

At BinckBank you can invest in options at various exchanges such as the Amsterdam Stock Exchange NYSE Liffe, the German Eurex and the American stock exchanges. You can trade in options on known stocks such as Aegon, Ahold and Apple, and indices such as the AEX-DAX and Nasdaq index. Do you want to buy an option? It is very simple at BinckBank. Open an account, make a transfer and you can get started straight away. Options are one of the most versatile tools you can trade on the stock market, making it possible to earn additional returns or speculate on a drop in prices, or increases. But most of BinckBank's investors use options to protect their portfolio against price declines. You can invest in all the options of the most important companies.

More information on the features and risks of options can be found in the document center.

Call options and put options

When you buy a call option, you are entitled to purchase the underlying value? for a specific time period and for a specified price. For this right you pay a premium that is expressed in the stock price of the option contract. The underlying value of a contract usually consists of 100 shares (index options or currency options have another contract size). With the purchase of a call option, you speculate on an increase in the underlying value. The more it increases in value, the more the value of your option contract increases.  

An option contract always terminates on its expiry date, which is stipulated in the contract. The expiration of monthly options occurs on the third Friday of the month (or a day earlier if Friday is a non-trading day). For example, if you buy one contract C RD DEC 2019 6, you have the right to purchase 100 shares RD to the third Friday of December 2019 for 6 euros per share. 

With a put option, it is the exact opposite and you have the right to sell the underlying value during a specified period of time, hoping for a drop in the underlying value. Your profit is based on selling the underlying value to someone at a higher price than the stock price. If you buy a call or put option, you will never lose more than your call.

Calculation example: call option Barclays

The stock price of Barclays shares at one point is 210 euros. With the purchase of one call option C BAR MAR 2020 200 you are entitled to buy 100 Barclays shares in three months for 200 euros. For this right, you pay a premium of 20 euros in this example. This premium should be multiplied by 100 since each contract is equal to 100 Barclays shares. If you purchase one contract, your investment is equivalent to 210 euros.

If the share price of Barclays then rises to 240 euros you can exercise your right to buy the shares for 200 euros. At the same time you can sell them at a higher price of 240 euros on the stock market.

If you write an option, you are required to sell the underlying value to someone (written call option) or to buy (written put option). This means that you are the buyer's counterpart of a call or put option. For the obligation of delivering or decreasing the underlying value, you will receive a premium. Writing options is generally a lot more risky than buying options as you can lose more than your investment (unless you cover the written options in an opt-out strategy). Many shareholders write call options on their shares to achieve additional returns on their portfolio. For an unsecured written option position, you must reserve an amount to meet any future obligations. This so-called margin obligation is deducted from the spending space of your investment account.