For qualified stockbrokers, there’s no reason for you to stick to day trading, short-term trading, or trading on a long-term contract. In fact, you don’t even need to worry about contractual agreements as an options broker. The gist of your work will be securing the rights to buy or sell trades, without putting up the full cost upfront.
A call – This isn’t a telephone call to your client. A call in the options industry gives you the right buy a particular asset, at an agreed price, without being contracted to fulfil the agreement.
A put – This gives the holder the right to sell an asset.
Holders – The term used for people who buy calls
Writers – The term used for people who sell puts
The difference in the buying of calls and puts are that investors buying an option, (calls) will buy on the hope of the price will rise. Buyers of puts will hope for the opposite to happen and that the price will drop before the option expires.
1) Call buyers
2) Call sellers
3) Puts buyers
4) Puts sellers
Working with calls, you don’t have contractual agreements you need to abide by. You simply buy an option for an agreed fee, and you have the option to sell that. Say you see a house that you reckon is being sold at under market value, but you don’t have the £140’000 funds to purchase the house as an investment to sell in future. You’d buy an option for a fixed fee of perhaps £3’000, giving you the right to buy the property at the price of £140’000 within an agreed time period.
Say 3 months, regardless if the property rises. Within that 3 month period, the owner of the option has the right to sell the property for a higher price, paying the options broker fee, and retaining the profits gained. The advantage is that you buy the right to sell without buying an asset at full cost. The risk being that fees are paid upfront and if you let the option expire, you lose the fee that’s been paid.
For specialists in options brokering, you’ll need to be extremely organized and know where to focus your attention to sell assets, before the options expire and paid fees are lost. The simplest way to get started with options trading is going to be as a holder. This gives you the most advantages as you can buy options without being obligated to buy the assets at the full purchase price. And you can sell at a higher price point, than the price the writer agreed on. If you choose to become an options writer, you’ll need to make good on your promise, agreed when you sold the put. That’s going to require more expertise and market knowledge, so you can be sure that you’re getting a good deal with the puts you sell to holders.
It is a complicated career and there’s a lot of lingo involved with it. It’s also something that investors are extremely interested in, as it helps them build their wealth faster, by acquiring assets for a fraction of the price it would cost, to purchase assets at the full purchase price.
Being an options broker is another option for those in the stock brokering field. Stock brokering, put simply is securing assets on behalf of clients. You can do that by purchasing stock at full market price, then selling for higher.
Or you can purchase an option, which gives you the right to sell the stock, without paying the full purchase price.