There are more and more spread betting brokers offering options trading online these days.
We’re not talking about evil binary options which are now thankfully banned by the FCA. We’re talking about real listed options on the DJIA(as an example in the image).
Traditional options are generally used as a hedging and limited risk way to get exposure to the markets.
There has been a lot of chatter recently about the market peaking and potentially correcting soon. So, how can you hedge your portfolio with index options as a spread bet.
Three decent spread betting brokers that offer options:
Typical options offered by spread betting brokers
- Some main market shares
The prices are pretty decent and liquidity is fair. Out of the money, options are generally not that liquid anyway so if they can get a price they will probably quote one on screen for you.
At the money options as a spread bet should prove easier to trade, but of course, the big profits come from buying deeply out of the money puts or calls and waiting for the market to come your way.
Of course, there is a certain amount of time value that will depreciate over time the closer to expiry you get. But if you are buying options your risk and downside are already factored in (if you are fully paid up). Always best to check the margin and your account statement to ensure this is the case.
One important point to remember that if you are writing (or selling) options as a spread bet your losses are unlimited. An option can go to zero, but it also (in theory) has no top end price.
There are many ways to hedge a portfolio using spread betting and buying options is a good tax free strategy.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.