When options are traded using spread betting, there are a number of advantages that the traders can enjoy. It is known that options provide the traders the right to buy or sell the underlying asset when there are favorable conditions but they are not under any obligation. However, to be able to use the spread bets to the best of the advantage, traders should be aware of the below mentioned important things about spread betting on options:
- Using the strategy to buy straight calls or puts is considered better than using the combination strategies. This is done because spread bet on options are more expensive than when options are traded in the traditional way or directly.
- With spread betting on options the maximum that a trader can lose is the premium paid initially. Therefore, using ‘calls’ and ‘puts’, traders can place their bets anticipating an upward or downward movement of the prices. While there is no limit to the profit potential the loss is limited to the amount initially spent on buying the option.
- Although options’ trading is slightly expensive, yet it is less risky than the futures trades. Therefore, traders who can anticipate medium to big moves must go for spread betting on options. A Futures bet is more appropriate for those traders who are expecting a small to gradual movement in the market.
- The spread bet options are always settled with cash. Since the traders are only betting on the movement of prices, there is no trading of any options.
- It is always beneficial to compare the prices between various providers when spread betting on options because prices tend to differ on many occasions.
- The risk with buying calls or puts is limited to the premium spent for purchasing the option. However, with selling calls or puts, the risk is slightly higher.
Therefore, traders should keep these important aspects in mind when using spread betting on options.