If you’re looking to start trading options in the Netherlands, it’s essential to understand the basics first. This article will provide an overview of how options are traded on a listed exchange and what you need to know before getting started. We’ll also touch on some key concepts that form the basis of an options trading strategy. So if you’re new to this exciting form of investment, read more for a primer on Dutch options trading.
What are listed options, and why are they traded in the Netherlands specifically?
Listed options are a derivative instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specific date. Options are traded on exchanges worldwide, including in the Netherlands.
The Dutch options market is regulated by the AutoriteitFinanciëleMarkten (AFM), the financial markets regulator in the Netherlands. The AFM supervises and enforces regulations to protect investors and promote fair and orderly financial markets.
There are many reasons why investors might choose to trade listed options. Some people use them to speculate on future price movements of an underlying asset, while others use them as a hedging tool to protect their portfolios from potential losses.
Options are used to generate income through a process called writing, or selling, options. When you write an option, you agree to sell someone the right to buy or sell an underlying asset at a specific price. If the option expires without being exercised, you get to retain the premium that the buyer paid for the option.
What types of assets can be traded with options?
A wide variety of assets are traded with options, including stocks, bonds, commodities, currencies, and indexes. In the Netherlands, some of the most popular underlying assets for options trading include Dutch shares like Royal Dutch Shell (RDS), ASML Holding (ASML), and Unilever (UN), as well as international shares like Tesla (TSLA) and Facebook (FB).
How do options work?
Listed options are traded on exchanges, and each option contract represents 100 shares of the underlying asset. For example, if you buy one contract of a particular stock option, you have the right to buy or sell 100 shares of that stock at a specified price.
The price at which an option is exercised is called the strike price, and the date is known as the expiration date. An option exercised at any time before the expiration date is known as a call option, while an option that is only exercised on or before the expiration date is known as a put option.
Options are priced based on several factors, including the underlying asset price, the strike price, the expiration date, and implied volatility. Implied volatility is a measure of how much the market expects the price of an asset to move over the life of the option contract.
You will need to pay a premium when you buy or sell an option. The premium is the price of the option contract, and it is paid to the seller when you buy an option or collected by the seller when you sell an option.
The premium is generally quoted in euros per share, and it is essential to remember that one options contract represents 100 shares. So if you see a quote for €2.00 per share, the premium for one options contract would be €200.
What are some of the key concepts to understand before trading options?
Before you start trading options, there are a few key concepts that you need to be aware of. These include:
- The difference between calls and puts.
- The concept of in-the-money, at-the-money, and out-of-the-money options.
- How to calculate the intrinsic value and time value of an option.
Calls and puts- A call option gives the holder the right to buy the underlying asset at the strike price, while a put option gives the holder the right to sell the underlying asset at the strike price.
In-the-money, at-the-money, and out-of-the-money options- An option is considered in-the-money if the underlying asset’s current market price is above the strike price for a call option or below the strike price for a put option. An option is at-the-money if the underlying asset’s market price is equal to the strike price. And finally, an option is out-of-the-money if the underlying asset’s market price is below the strike price for a call option or above the strike price for a put option.