With options, you can tailor your position to your own financial situation, stock market outlook and risk tolerance. One of the benefits of options is the flexibility they offer—they can complement portfolios in many different ways. Vision Financial Markets offers investors various types of stock options. These products can be traded on the different trading platforms available from Vision.
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Besides being accessible via our Web site, copies of the Options Disclosure Document are available from your Vision sales representative, or by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606.
An equity option is a contract which conveys to its holder the right, but not the obligation, to buy or sell shares of the underlying instrument at the strike price on or before the expiration day. Equity options have many benefits including flexibility, leverage, limited risk for buyers and contract performance guaranteed by the Options Clearing Corporation.
- Equity option contracts usually represent 100 shares of the underlying stock.
- An equity option buyer’s risk is limited to the amount of the premium paid for the option, but the writer has unlimited potential loss that is somewhat offset by the initial premium paid for the contract.
- Equity option contracts generally have only American style expirations and are physically delivered.
Like equity options, index options offer the investor an opportunity to either capitalize on an expected market move or to protect holdings in the underlying instruments. Cash-settled index options do not relate to a particular number of shares. Rather, the underlying instrument of an index option is usually the value of the underlying index of stocks times a multiplier, which is generally $100. Index options can have either American or European style expirations.
Benefits of index options:
- Diversification: Index options enable investors to gain exposure to the market as a whole or to specific segments of the market with one trading decision and frequently with one transaction. To obtain the same level of diversification using individual stock issues or individual equity option classes, numerous decisions and transactions would be required.
- Predetermined Risk for Buyer: An index option buyer’s risk is limited to the amount of the premium paid for the option.
- Leverage: An index option buyer can pay a relatively small premium for market exposure in relation to the contract value.
- Guaranteed Contract Performance: An option holder is able to look to the system created by the Options Clearing Corporation and to certain funds held by the Options Clearing Corporation rather than to any particular option writer for performance.
Options on ETFs
Exchange Traded Funds (“ETFs”) are shares of trusts that hold portfolios of stocks designed to closely track the price performance and yield of specific indices. Trading options on ETFs allows traders to use the leverage of the derivatives markets to potentially increase gains from high probability ETF trades. Properly executed ETF options offer investors a chance to realize substantial profits from smaller investments than that required for buying stocks and minimize downside risk.
- Options on ETFs are physically settled and have an American style exercise feature.
- They are operationally similar to options on stock.
- The options are generally 100 shares of the underlying ETF.
Information on options including comparison, statistics or other technical data will be supplied upon request.