Options

When you invest in options you do not invest directly in shares or bonds; instead you buy the right to buy or sell a particular share at a particular price at some point in the future. Options are traded on the stock exchange. This is comparable with taking out an option on a house: you then have the possibility of buying the house at some point in the future. However, you have to pay for investment options.

The price of an option depends on a number of factors, including:

• The current price of the share in question.
• The exercise price, which is the price for which you can buy or sell the share.
• The term: the period in which you have the right to buy or sell the share at the exercise price.

Call and put options
There are two types of options: call options and put options. With call options you have the right to buy shares at the agreed price. With put options you have the option of selling shares at the agreed price. An option always relates to one hundred shares.

High-interest, but also high-risk
Investing in options can be both attractive and very risky. If you buy an option, you only spend a relatively small amount of money to profit from a rising or falling share price. At the same time, when you buy an option you run the risk that the option will ultimately be worthless, in which case you lose the price that you paid for the option. If you sell an option - which is also known as ‘writing’ an option - the risk profile is reversed. The maximum potential profit is the price that you receive for the option. At the same time, you run the risk that the shares are worth a lot more or a lot less than the exercise price. Because an option always relates to one hundred shares, the amounts in question can be considerable. Options are therefore only an interesting investment for active investors.

If you are considering investing in options, always check what risks and obligations will be involved.