Options Strategies - Xetra Options

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Options Strategies - Xetra Options
Option strategies are the simultaneous as well as
often mixed, buying or selling of one or
more options which are different in one or more
of the options variables. This is often done to
gain exposure to a specific type of opportunity
or risk while completely removing other risks as
part of a trading strategy.
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Overview
A very straight forward strategy might simply be
the buying and selling of a single option however
option strategies often refer to a combination of
simultaneous buying and selling of options. They
also allow to profit from movements in the
underlying that are bullish, bearish or neutral
and in the case of neutral strategies, they can
be progressive classified into those that are
bullish on volatility and those which are bearish
on volatility and the option positions used can
be long and/or short positions in calls. Bullish o
ptions strategies are used when the options
trader expects the underlying stock price to move
upwards and it is necessary to assess how high
the stock price can go and the time period in
which the rally will occur in order to choose the
optimum trading strategy. Bearish options
strategies are employed when the options trader
expects the underlying stock price to move
downwards and it is necessary to assess how low
the stock price can go and the time frame in
which the decline will happen in order to choose
the optimum trading strategy. Neutral trading are
employed when the options trader miscounts
whether the underlying stock price will rise or
fall also known as non-directional strategies,
they are so called because the potential to
profit does not depend on whether the underlying
stock price will go upwards and the correct
neutral strategy to employ depends on the
expected volatility of the underlying stock price.
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Binary Options
In terms of finance, a binary option is a type
of option in which the payoff can take only two
possible outcomes either some fixed monetary
amount or a precise established in advance
quantity or units of some asset or nothing at all
in contrast to ordinary financial options which
typically have a continuous spectrum of payoff.
There are two main types of binary options such
as the cash or nothing binary option and the
asset or nothing binary option in which the cash
or nothing binary option gives some fixed amount
of cash if the option ends in the money while the
asset or nothing gives the value of the
underlying security. They are also known as all
or nothing options, digital options more common
in forex and interest rate markets and fixed
return options and the value of a digital option
can be expressed in terms of the chances of
exceeding a certain value which is the cumulative
distribution function.
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Due to the thing which is hard to accomplish for
market makers to hedge binary options which are
near the strike price around the end of the
period for which something is valid these are
much less liquid than vanilla options which is
standard as well as ordinary call and put
options. Dealers often make an exact copy of them
using vertical spreads which provides a rough and
inexact hedge and though binary options sometimes
trade on exchanges which are regulated they are
generally unregulated trading on the internet as
well as prone to fraud. On non-regulated
platforms, money of the client is not necessarily
kept in a trust account which is required by the
government financial regulation and transactions
are not checked by third parties in order to make
sure a fair play.
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