1. Commodities digital Options
A commodity digital option is a trade whereby the expected future value of a commodity is projected on a fixed date. Gold and crude Oil are the main commodities traded in digital options market. Let’s assume the price of gold currently stands at $100 dollars an ounce and a trader anticipates a rise in value after 2 weeks. He or she can purchase 4 digital options contracts valued at $20 dollars each since each contract yields $100 dollars. In the event the price of gold increases after a fortnight, the trader will get a gross profit of $400 dollars.
All possible profits and losses are laid out in advance before the trade is made. Commodity digital options have short durations on returns on investments, usually in hours or days.
2. Pair Options
This is a trade whereby the trader selects the best performing company stock paired up against another company’s stock within the same industry. An example of stock pair options is Google/Yahoo because they are two rival firms competing in the Internet services industry. A trader may decide that Google’s stock price will perform better than Yahoo at the close of the week. The trader will receive anticipated profits if Yahoo outperforms Google at the end of the week. On the other hand, losses will be incurred if Yahoo’s stock price drops below Google’s share price at the end of the week.
3. High/Low Options
It is a trade whereby the trader predicts the value of an asset to either rise or fall below a specified figure after a fixed duration. A broker may present a high/low option for gold which he expects to fall below $200 dollars an ounce after a week. Traders who select high option will get a profit if the price of gold reaches or crosses the $ 200 dollar mark after one week.
High/Low options only depend on the rise or fall of prices hence ensuring that traders can receive high returns on investment, even in bear stock exchange markets. Returns on Investment can reach 90 percent and is ideal for short or long term investments.
4.Touch/No touch Options
A trader who opts to invest in touch options is required to predict the magnitude of a rise or fall in an asset’s price. For instance, a trader is certain the price of a barrel of crude oil currently selling at $110 dollars a barrel will rise by $5 dollars at the end of the week. He or she will reap profits if the new price of a barrel of crude oil hits $115 at the agreed time. Traders who purchase this option can reap profits whenever the asset’s price hits the predicted figure before the lapse of the expiry period.
Touch options are ideal for stock exchange markets with high volatility because dynamic external economic forces involved may push asset’s price to the desired level.
5. Range Options
A broker offering this option uses a graph to select parameters where the price of an asset is expected to hit within a specified duration. Let’s assume an investment broker predicts the price of Yahoo’s stock currently valued at $50 to rise by $2-$6 dollars at the end of the first financial year quarter. Any trader who buys this range option knows that he or she will make a profit only if the price of Yahoo’s stock ranges between $52-$56 dollars at the end of the first financial year quarter.
Range options yield a 70-85 percent return on investment. They are easier to predict compared to touch/no touch trading options since the trader is not expected to give the exact magnitude of price fluctuations. Range options are ideal for highly volatile markets where high fluctuations occur regularly.
6. Index Options
An index option is a financial security composed of more than five different companies’ stocks belonging to the same industry. The group’s performance is represented using an aggregated index derived from each company’s individual performance in the stock exchange market. Traders make profits by correctly predicting index movements in the stock exchange market.
Index options are stable because the group’s index is immune to fluctuations attributable to minor events such as a company’s quarterly reports. Purchasing an index option is significantly cheaper compared to purchasing a set number of shares from all individual companies belonging to the index group.