When just as the economic climate seems to ease out, the markets are near exhausted by the ill effects of the Eurozone crisis in terms volatility and political instability. Such volatility is very unlikely to subside with the elections in the US and UK is approaching fast and the risks are still very real that other indebted Eurozone affiliates are still avoiding another Greece’s exit along with high tensions in the Middle East are just some of the things that traders are anxiously anticipating.

Although volatility may seem to be relatively pleasant news for spread betters, making the best of the moment depends on making the right calls and avoiding the chance of getting mixed up on the wrong side of the trade which could potentially cause a trade to fall out. Regrettably, much of the large themes steering the market at present are not very clear in their calls and events.

One effective way in which traders can gain profit from these markets is by spread betting using options. This derivative instrument is normally quite intricate and often only used by seasoned traders, but retail traders can take a view on market volatility and long-term market direction by the use of this derivative product in terms of the price of an option.

You can trade on the price of either call or put options. A call option is the right to purchase a specific market at a fixed position on or before a given date while a put option is simply the right to sell. It is therefore very important for spread bettors to have full knowledge and understanding of the complexities of constituting an option. You are betting on the change in price and the valuation is split into two separate components namely the intrinsic and time value. An intrinsic value is present if there is some value to be gained from using its initiative. Any other option that has expiration to it is regarded as a time value which reflects the potential that it may increase in value to the holder prior to its expiration date.

Options are relatively valuable to spread betters for several reasons. Those who take on directional views in volatile markets will benefit from the less probable downside of spread betting on options. Basically you will never lose any more than the initial cost of the option and will be less affected by the market’s undesirable volatile movement.

Options are indeed relatively very complicated as they are multifaceted than any other spread bets. The only drawback however is that it has a limited downside and the ability to take on a widened view on market volatility is very low. Spread betting on options is an exceptional instrument to use if used in a correct and conventional manner.

Last Updated: September 16th, 2012