Options

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The RIGHT (not the obligation) to buy (call) or sell (put) an underlying asset at a fixed price. Traded on Eurex. Professionals use them for hedging – beginners often lose money with them.

An option is a contract that gives you the right to buy or sell an underlying asset (share, index, commodity) at a set price (strike) up to a certain date.

The two basic types:

Call option (option to buy):

• You bet on rising prices
• Right to BUY the underlying at the strike price
• Example: call on the DAX at 18,000 points. The DAX rises to 19,000 → 1,000 points profit (minus premium)

Put option (option to sell):

• You bet on falling prices OR hedge your portfolio
• Right to SELL the underlying at the strike price
• Example: put on the DAX at 18,000. The DAX falls to 16,000 → 2,000 points profit

Key terms:

• Premium: the price of the option (your maximum loss as a buyer)
• Strike: the agreed purchase/sale price
• Term: until when the option is valid
• Intrinsic value: the difference between the current price and the strike
• Time value: falls to 0 by expiry (time decay)

Where are they traded? In Germany on Eurex (Frankfurt/Zurich) – one of the largest derivatives exchanges in the world, with millions of contracts traded daily.

Difference from warrants: options are standardised and exchange-traded (Eurex). Warrants are issued by banks and carry issuer risk.

Did you know? Eurex in Frankfurt, with more than 1.7 billion contracts traded a year, is one of the world's largest derivatives exchanges. Options were originally invented in ancient Greece – Thales of Miletus used them to speculate on the olive harvest.

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