Options trading is something that is currently very popular, and it is one of the biggest forms of financial trading in the world. Billions of dollars in contracts are traded on a yearly basis, and that is something that, obviously, has a huge effect on the economy in all areas of the world. Because of this, many believe that options trading in its current form has been around for hundreds of years, but that simply isn’t true.
Options trading, as we know it today, started just about 50 years ago and has ballooned since then, becoming bigger and offering more trading opportunities for people who are thus interested. Because of the risky nature and historical tendency to lead to speculative bubbles, some investors are still leery about options trading.However, modern options trading is relatively safe.As an example of how young modern options trading is, the Chicago Board Options Exchange is one of the oldest modern options exchanges and it has only been around since the 1970s.
Looking at Futures vs. Options
Futures and options are really close to being the same thing. The biggest difference lies in the way that you are able to carry out the contract. For example, you are able to sell your options at any time that you want. With futures, you have to wait until the end of the contract if you want to be able to sell the investment and start to profit off of it.
Futures are very limiting while options are very flexible in terms of selling for a profit.
Ability to Sell Your Options
One of the biggest benefits to using options is that, as I said, you can sell them at any time that you want within a certain timeframe delineated in the contract. However, this also means that you need to make sure that you are going to truly profit from the options contracts that you have established.
Because there are so many different aspects that go into trading, especially when you have somethingso functional and important as options contracts, you will be able to look at the different key points of shares and contracts,as well as the way that they are building up value while you have them. Once you’ve evaluated everything, if you want to sell your options and the price is at a good point, you can stand to make a huge profit off of them.
Change in the Way That Options Work
Throughout time, people recognized that there was a need to have a way to speculate on future values. Many investors liked the way that trading worked and they especially liked the way that futures worked, but they did not want to have to wait until the end of the contract to be able to profit from the trades. This was something that they always kept in mind, but it took off when options trading became a reality. There are many ways that options trading works to help enterprising investors out, and allowing them the chance to sell their investments off at anytime that they want at a certain price point gives them the flexibility that many people hope for when they are trading and when they are doing different things.
Options in the Past
Despite the fact that options are a fairly new concept in the world of modern trading, the idea behind options trading is ancient. As far back as ancient times, people were speculating on certain markets. This was something that the modern traders to base their options trading ideologies on, and it allowed them the chance to make sure that they were truly doing things the right way by comparing their set-up to the mistakes of the past, such as the Dutch Tulip bubble.
Options trading historically served the same purpose it does today: a way for people to make money off of their intuition for judging market directions. While they did not necessarily call it options trading at the time and they certainly did not have the technology that is available today, the principles behind it were the same.
Having Regulations for Options
When futures trading first started, there were a lot of regulations for it, and people had to follow each of these regulations to make sure that they were going to be able to get the best experience possible when it came to the trading opportunities. In other words, the regulations served both the investors and the economy by preventing speculative bubbles.
The same is true for options trading. However, with options trading,the regulations didn’t really start to pop up until after the concept of options trading had been long developed. Because of this, the process for developing regulations was a little different than it had been for futures, as the process for developing regulations for options trading had been based in the historical mistakes of speculative trading.
Obviously, having the ability to look at past options trading scenarios was helpful when the regulations were being made. Looking to the past will invariably teach you a lot about the future. The same is true for options trading. There are a number of regulations in place based on the early mistakes of proto-modern options trading and early speculative markets.
In other words, the regulations for options trading may seem rather extensive, but they are as they are for very good reason.