Options Examples
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IG Markets makes it simple for you to take advantage of volatility in markets by trading Options.
Buying a FTSE Call Option
It's January and you believe the FTSE 100 will rise. Our quote for FTSE 100 February Forward stands at 5412/5414 and our quote for a February FTSE 100 5500 call option is 81/84. You decide to buy this option CFD for £10 a point at 84.
One advantage of buying options is that you know your maximum possible loss in advance. In this case, you cannot lose more than 84 x £10 a point = £840
A few days later, as you predicted, our price for FTSE 100 February Forward has risen to 5532/5534 and, based on this, the February FTSE 100 5500 call option price we are quoting is 145/148. You decide to take your profit by closing your position at 145.
Profit
| Closing level | 145 |
| Opening level | 84 |
| Difference | 61 |
Profit: 61 x £10 = £610
Buying a Wall St Put Option
In January our Wall St March Forward quote is 10484/10490. You think Wall St is set to fall so decide to buy our March 10400 Wall St put option. Our price for this option CFD stands at 270/284 and you buy $10 a point at 284.
One advantage of buying options is that you know your maximum possible loss in advance. In this case, you cannot lose more than 284 x 10 = $2840.
A few days later, against your expectations, Wall St rises and our price for Wall St March Forward is 10603/10609. Our price for our March 10400 Wall St put option is now 210/224. You don’t think Wall St will recover before March, so decide to cut your losses and close your position.
Loss
| Closing level | 210 |
| Opening level | 284 |
| Difference | 74 |
Loss: 74 x $10 = $740
Related Info
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