Make investments or hedge risks with options
The option contract, or simply option, gives the buyer the right, but not an obligation, to buy ("call" options) or sell ("put" options) an asset on or before a specified date at a specified price ("strike price"). The option seller (writer), in turn, assumes the obligation to buy ("put" options) or sell ("call" options) the specified asset at a specified price within a specified time period. When buying an option, the customer pays a premium and a fee for the execution of the transaction, the amount of which depends on the option exchange where the option is traded and on the number of option contracts traded (for over-the-counter option transactions, the fee is normally agreed on a case by case basis).
Frequently Asked Questions
The option contract gives an opportunity to control somewhat larger positions with a relatively small amount of capital. From the perspective of risk hedging, such a contract may serve as an "insurance policy" against unfavorable asset price movements on the market.
Options can be used by investors seeking to make a profit both on price increases and price drops.
There are two types of options: The "call" options give the buyer the right to buy a specified asset at a specified price. The "put" options give the buyer the right to sell a specified asset at a specified price. On the other side, the seller of a "call" option assumes the obligation to sell a specified asset at a specified price, whereas the seller of a "put" option assumes the obligation to buy a specified asset at a specified price.
"Call" options can be used for making a profit on rising prices. "Put" options, conversely, can be used for making a profit on falling prices.
When buying options, the buyer cannot lose more than the price or the premium paid - the maximum amount of potential losses is known in advance. One should also bear in mind that the prices of option contracts may fluctuate substantially - the investor must have a high risk tolerance when making investments in options. For further information about risks, see the Guide for Transactions in Financial instruments available on the Swedbank website under "Retail banking" > "Savings and investments" > "Investments" > "Protection of investor interests".
One option contract with equities serving as the underlying asset normally comprises 100 shares. Equity index options may have different contract sizes - for example, one German DAX index option contract comprises 5 index units. Options traded in the over-the-counter market have terms and conditions that are agreed individually at the time of buying the contract, that way allowing investors to find an arrangement that suits them best.
In order to trade options, you need to sign the Agreement for Financial Market Transactions and fill out the Complex Financial Instruments questionnaire.
The underlying assets of option contracts include equities, equity indexes, foreign exchange and, for example, commodity futures.
Option contracts can be traded on business days from 09:00 to 17:00 by phone.