These contracts are usually priced at a small fraction of the underlying instrument. For example, with the FTSE at 4550 in mid-April, a call option with a strike of 4770 expiring in June would have a value of 150 points.

The value of an option essentially comes from two components. The first is its value at that moment (its ‘intrinsic’ value) and the second is the likelihood of its value increasing with market movements over its life (known as the ‘time’ value). On the expiry day, an option will have no time left and all of its value will be intrinsic. (Note that because an option is a right, not an obligation, its value can never be negative.)

You can buy (up) or sell (down) on the price of an option. Placing a bet on the up value is often a good way to take a view on a market whilst having only a limited risk, as the maximum possible loss is the price paid for the option multiplied by your stake.

Placing a down bet is a much riskier option as you are accepting a limited possible profit (the price you sold at multiplied by your stake) whilst facing potentially unlimited losses.

• Buying a call - expecting the market to rise
• Selling a call - expecting the market to fall
• Buying a put - expecting the market to fall
• Selling a put - expecting the market to rise

Once you have made your choice, you are free to run your bet until expiry, or to close it at any time during normal options trading hours (providing there are sufficient funds in your account and you meet margin calls in accordance with our terms and conditions).

Please ensure you understand the risks involved before betting on options prices - should you require any clarification, we recommend you seek independent advice. You are also free to contact the dealing desk on 020 7550 8515.

We quote competitive two-way prices, which include all costs, to enable you to bet on option prices going up or down.

Markets:

• FTSE
• DAX
• S&P
• Wall Street
• Currencies
• Interest rates
• Gold
• Silver

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