What Is An Options Trader

To understand the job of an options trader, it is paramount to understand what options trading is and how it works.

Firstly, options are defined as derivative financial instruments on an underlying asset or financial security. It allows an individual to exercise a call or a put depending on the predicted price of the product. (Hence the term “options on futures”.)  

An options trader spots the strike price and determines when to execute a certain position, this initial purchase is also called the “options premium”.

With these terms in mind, head on to Investopedia to understand how options are traded and what options strategies are in place. They have accurately compiled a list of prices and how to study them, more details can be found here.

Secondly, for options traders, options are traded on a wide range of assets and securities, including equities, bonds, interest rates, and currencies.

Options trading for derivatives is considered one of the most flexible forms of trade as it allows any options holder the right to buy or sell the underlying asset (but not obligated to) at a set price, while the writer (seller) is obligated to take delivery if the option is exercised.    

Hence, an options trader is an individual that actively trades any of the above acts of trade.  

History of Options Trading

When the options industry was first established, it had begun as an OTC (over-the-counter) product, ungoverned by rules and regulations.

Due to the inability to regulate such trades, alternatives such as standardized options contracts were introduced into the options future market.

Apart from the legalization of contracts, options trading can also be further distinguished into plain vanilla options, which are standard options, or exotic and specialty options, which are non-standard options.  

In general, all forms of options trading are done through call options or put options. Refer to the previous article on hedging with futures and options for more information about these terms.
 

How To Trade Options

Individuals can become full-time option traders through an investment firm, retail firm, or choose to freelance.

Some organizations that allow investors to specialize in options, futures, or forex include hedge funds, which are the primary hiring groups for large-scale investments.

Subsequently, these organizations will require access to intermediary firms or brokerage firms such as Orient Futures.

Brokerage firms such as ours provide trading options from Singapore to clients as far as the UK. There are numerous benefits of trading options with a brokerage firm, some of the benefits include:  

1) Access to the Chinese markets

2) Integrated options trading platform

3) Able to use spread bets or any strategy and track gain or loss.   

Hence, traders that are searching for trading options in the UK (as in the example above) can look forward to trading through brokerage firms from the west to the east.

 

Examples Of Options And Chinese Market Options

If an institutional investor from Israel would like to trade European Options, Orient Futures Singapore will serve as the intermediary to provide ICE Futures Europe (IPE)’s Brent Crude Options for the Israeli trader.

Correspondingly, we also offer direct access to the Chinese market, for example, traders can also access RBD Palm Oil Options by Dalian Commodity Exchange.

 

Is Options Trading Taxable?

Based on Investopedia, options trading is taxable in many countries based on the period of trade and circumstances where the positions were closed. This is especially so if traders are registered as a company and deal with a large value and volume of monetary exchanges.

Investopedia provides a holistic understanding of the type of taxes and how they are charged, refer to the taxes article here.

While options trading is taxable, the proportion of income tax for traders differs amongst countries.

 

A list of income taxes indexed based on governmental websites for reference:

If traders are trading in Singapore, the income tax act is written in Chapter 134, Income tax (Concessionary rate of tax for global trading companies) Regulation 2016.  

If traders are trading in India, the income tax act is in Section 43 (5).

If traders are trading in UK, the income tax regulations are in CFM50070.

If traders are trading in Dubai or the UAE, the income tax regulations are in Article 42, otherwise more updates are set to start in 2023.

If traders are trading in Malaysia, the SST service tax is in the official FAQ and income tax rates can be found from the finder.  

If traders are trading in Indonesia, refer to the tax booklet here.

If traders are trading from Thailand, refer to the tax document here.

For countries that are not mentioned in the list above, information regarding specific taxes can be obtained through an official clause of the Income Tax Act or a government site.   

Pros and Cons of Options trading

Options trading is often tagged with the stigma of risk. A quick google search will produce the following question, “is trading options gambling?”.

The answer is this, the con of options trading is that it can be gambling if individuals or institutions simply purchase options without a comprehensive understanding of its terms, such purchases are made simply because of the obligation to buy.  

However, there is a silver lining to that.

The first pro of options is its simplicity.  Purchasing options denotes that the risk is the cost of the premium purchased at the strike price. With that risk considered, trading is more manageable in comparison to other derivatives such as forwards or futures.

The second pro of options is the flexibility of trading. Traders can implement market strategies to effectively hedge the risks of the trade, for example, by purchasing a call and a put simultaneously.

 

Options Fun Fact

With so many strategies and factors to consider with options trading, here is an additional fun fact.

The Black-Scholes Formula is a formula created by Professor Fischer Black in 1973. It consists of 6 components to calculate the theoretical value of an option.

These six factors are underlying share price, options strike price, time until expiration, implied volatility, dividend status, and interest rates.  

The statistical contribution of the value was significant enough that it would be awarded the Nobel Memorial Prize in Economic Sciences by Scholes and Merton 2 years after Black’s passing.

While the mathematical formula is intimidating and hieroglyphic to the ordinary eye, technology has made options calculable for any trader today.

The Black Scholes Calculator can be found online through sites such as goodcalculators.com here.

 

Start Trading With Orient Futures Today

At Orient Futures, we provide traders and hedgers with access to options futures and other derivatives through exchanges, including China’s market.

Being an Overseas Intermediary of Shanghai International Energy Exchange(INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in the internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.

We provide premium service at an affordable cost to all our clients, being there for you 24 hours on trading days to providing a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.