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SpreadBetting Options


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Hi,

I'm looking at using options to supplement my trading. I've watched a fair view videos (both from IG and other sources) and (thought) I was comfortable in how they operate, at a very basic level.

I was trying to do a straddle on my demo account - I bought a PUT and a CALL at the same strike price (10890) at 0.5 per point on the DAX/Germany 30.
From everything I've read, it seems the trade will be unprofitable if the market stays stagnant, but should profit either way if the market moves up or down more than my premium.

The problem I'm having is calculating at which point my break-even is, what my maximum risk is and at what part I would start to profit.
Using this video as an example: https://www.ig.com/uk/options-trading/what-are-options-how-do-you-trade-them
It advised the maximum you can lose is the premium you paid for the Option but mine seems to have went above that (or I have misinterpreted what the premium is).

EG, these are the Options I purchased last night.
after I bought them, both were sitting at -£6 from my interpretation of the things I've watched, I expect £6 to be the maximum amount I can lose.
The market has since taken a nose dive so I expect the Put to be in profit but the Call to be at a loss. At the moment it appears the Call is losing far more than the Put is gaining.

When I select either of the orders below it shows it on the chart (I can't view both orders on the chart at the same time) and the chart also flips vertically depending on what order I select:
image.thumb.png.638c6c266aa9556dd586162478e19072.png

image.thumb.png.d344d9def1553751c7f9e8f4286a4309.png

image.thumb.png.c16fec78b9e0f578f713282dd1d89fbb.png
Is anyone able to shine some light and tell me:
Where can I find the maximum amount I am risking with this trade?
Using the trade above, at what point would I break even (as above, the chart shows % instead of price levels)?
Using the trade above, at which point would it start to become profitable?

Thanks in advance for any replies.

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Guest shaggly

As you have shown you paid 50.7 for one option and 60.4 for the other in 50p per point therefore the premium you paid was 25.35 and 30.20 . If the market settles at 10890 then your total loss would be 55.55 ie what you have paid for the options which expire worthless . Your breakeven levels need to cover both the premium paid for the PUT and the CALL so 111.10 points therefore 11001.10 / 10778.90  . Outside these ranges you make 50p per 1 point move . Inside this range and you will be losing .

 

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On 12/05/2020 at 13:29, Guest shaggly said:

As you have shown you paid 50.7 for one option and 60.4 for the other in 50p per point therefore the premium you paid was 25.35 and 30.20 . If the market settles at 10890 then your total loss would be 55.55 ie what you have paid for the options which expire worthless . Your breakeven levels need to cover both the premium paid for the PUT and the CALL so 111.10 points therefore 11001.10 / 10778.90  . Outside these ranges you make 50p per 1 point move . Inside this range and you will be losing .

 


Thanks for your reply. It really cleared things up.

One thing I'm still confused about is why the trades appear the way they do.
For example, US500 is currently at 2823.63.

I BUY a PUT with a strike price of 2860 with a daily expiry. 
My understanding is that if at the end of the day, the US500 index is less than my strike price of 2860 then I should be in profit. Why does my account show a loss:

image.png.046ed12c639c6a3aa59a4d5c8b01920f.png

(This screenshot was taken right after I bought the option).

Thanks again for your help.

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8 hours ago, Spook1304 said:

I BUY a PUT with a strike price of 2860 with a daily expiry. 
My understanding is that if at the end of the day, the US500 index is less than my strike price of 2860 then I should be in profit. Why does my account show a loss:

You need to take into account the premium you have paid.

For example if you bought the put at say 30 then you would need to the index to close below 2830 to make a profit (strike 2860 minus 30 premium).

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3 hours ago, andysinclair said:

You need to take into account the premium you have paid.

For example if you bought the put at say 30 then you would need to the index to close below 2830 to make a profit (strike 2860 minus 30 premium).

Thanks, that makes sense. One of the main things that seems to be different from everything I've read and watched is selling PUTs and CALLs.
Everything I've read says when you sell one of these you actually GET the premium and hope the option expires worthless but that doesn't seem to be the case on the IG CFD or Spreadbet account.
Regardless if I buy or sell, it seems I always need to pay the premium. 

I've not been able to find anything that explains this very well as everything I can find says if you SELL (are the writer) then you should receive the premium.

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On 14/05/2020 at 12:25, Spook1304 said:

Thanks, that makes sense. One of the main things that seems to be different from everything I've read and watched is selling PUTs and CALLs.
Everything I've read says when you sell one of these you actually GET the premium and hope the option expires worthless but that doesn't seem to be the case on the IG CFD or Spreadbet account.
Regardless if I buy or sell, it seems I always need to pay the premium. 

I've not been able to find anything that explains this very well as everything I can find says if you SELL (are the writer) then you should receive the premium.

I found my answer in this thread:
https://community.ig.com/forums/topic/8533-selling-options/?tab=comments#comment-46861

Looks like you get the premium but not until expiry.

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