Business

How do listed options work in the UAE?

Listed Options Work In The UAE – Listed options are a type of derivative instrument that allows investors to speculate on the direction of underlying asset prices. Options contracts are a great way to invest without getting stuck with a physical asset.

With options, the buyer has the right, but not the obligation, to either buy or sell an asset at its underlying price at any time before its expiration date for a set price per share. In the UAE, listed options offer investors several advantages.

Types of listed options

There are two types of listed options:

  1. Put options gives the holder the right to sell an underlying asset at a specified price.
  2. Call options gives the holder the right to buy an underlying asset at a specified price.

The value of listed options

The value of listed options is derived from the underlying asset’s price. If you purchase a call option on ABC Company stock with a strike price of $100 and the stock price increases to $105, your option is ‘in the money’ by $5. On the other hand, if the stock price decreases to $95, your option is ‘out of the money’ by $5.

Where are listed options traded?

Options contracts are typically traded on the Dubai International Financial Exchange (DIFX) or Abu Dhabi Securities Exchange (ADX).

How to get started trading listed options

Firstly, you must open an account with a broker that offers trading options. Once you have opened an account, you can place orders to buy or sell options contracts just like you would any other security.

When you buy an options contract, you must put down a deposit known as a margin. Margin is essentially a good faith deposit that shows you are serious about buying the option. The margin required will vary depending on the broker but is typically around 10-20% of the contract value.

Once you have bought an options contract, you can choose to hold it until expiration or sell it at any time before expiration. When you hold the option until expiration and it expires ‘in the money’, your broker will automatically exercise the option and buy or sell the underlying asset for you at the strike price.

If the option expires ‘out of the money’, it will expire worthlessly, and you will lose your initial margin deposit.

Options contracts are a valuable tool for speculating on the future direction of asset prices. However, it is essential to understand the risks involved before getting started. Trading options are unsuitable for everyone, so make sure you understand the risks involved before making any trades.

What are the risks of trading listed options?

Options trading is a risky business, and several factors can affect the outcome of your trades. Some of the risks you need to be aware of include:

Volatility

The price of an underlying asset can move erratically, impacting the value of your options contract.

Time decay

The value of your options contract will decrease as it approaches expiration, and this is because there is less time remaining for the underlying asset’s price to move in your favour.

Liquidity

Options contracts can be less liquid than other securities, making it more challenging to find a buyer when you want to sell.

Finally

Listed options provide access to a wide range of underlying assets. Whether you want to trade stocks, indexes, or even commodities, you have an option contract. Traders can use listed options to generate income. By selling options, investors can collect premiums to offset losses in other parts of their portfolios. For these reasons, listed options are an attractive investment tool for UAE investors.

If you are looking for a way to diversify your portfolio or generate income, consider trading listed options. Novice traders in the UAE should contact a reputable, experienced, and reliable online broker before investing in listed options, trade on the demo accounts to gain experience, and practise different trading strategies.

 

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