Understanding long-term options: How to buy and manage long-term options on the Saxo platform

Step 5: Analyzing the trade ticket and placing an order

After selecting a long-term option from the option chain, clicking on the 'Ask' price will open a trade ticket. This is where you will make the necessary adjustments before purchasing your option. Here's how to proceed with the trade ticket details:

1. Type of order: Ensure the order type is set to 'Buy to Open' if you are initiating a new position. This action signals that you are buying to open a new long position in the option.
2. Quantity: Specify the number of contracts you wish to purchase. Each contract typically covers 100 shares of the underlying stock, so consider how much exposure you want to have.
3. Expiration: Verify that the expiration date of the option matches your investment timeline. For LEAPS, this would usually be one to three years into the future.
4. Strike price: Confirm the strike price. This is the price at which you can buy (call) or sell (put) the underlying stock if you decide to exercise the option.
5. Call or put: Select 'Call' if you are buying a call option, which gives you the right to buy the stock at the strike price before the option expires.
6. Price: The price field shows the current asking price per share for the option. This is what you will pay per share for the contract.
7. Placing the order: Review all the information to ensure it aligns with your trading strategy. When ready, click the 'Place Order' button to execute your trade. This will send your order to the market.

Important Information in the trade ticket:

• Premium: The total cost of the option is known as the premium, displayed clearly on the trade ticket. This is your financial commitment when buying the option.
• Trade fees: Note the associated trading fees, which will affect the total cost of the transaction.
• Cash available: Check your account to ensure you have sufficient funds to cover the premium and any fees.

Screenshot guide:

The screenshot below highlights the essential areas of the trade ticket:

• The Type of order setting ensures you are opening a new position.
• The Quantity field where you adjust how many contracts you want.
• The Expiration date confirms when the option will expire.
• The Strike price indicates the price level at which the option can be exercised.
• The Price per share or per contract shows how much you will pay.
• The Place order button is where you will click to finalize the purchase.

Step 6: Analyzing potential risks and rewards using the risk graph

Once you have selected a long-term option, you can further analyze its potential risks and rewards using the risk graph feature on the Saxo platform. This powerful tool visually represents the possible outcomes of your option strategy based on different price movements of the underlying asset. Here's how to access and use the risk graph:

1. Accessing option strategies:
• Return to the option chain for the selected stock or index, in this case, NVIDIA.
• Above the list of options, click on the "Strategies" button. This section allows you to set up and analyze complex option strategies, but it can also be used to examine a single option (important note: this window can NOT be used to enter a single leg order, for that you need to use the trade ticket discussed earlier on).
2. Setting up the trade:
• Ensure the "Buy/Sell" field is set to "Buy to Open" if you are considering a new position.
• Choose the expiration date and the strike price of the option you are interested in. For our example, you might select a strike price of 850 with an expiration in June 2025.
• Specify whether it is a "Call" or "Put" based on your strategy.
3. Viewing the risk graph:
• Once your option details are set, locate and click the button or link that says "Show risk graph" if the graph is not already displayed. Clicking it should toggle to "Hide risk graph," revealing the risk graph associated with your chosen option.
• This graph visually represents your potential profit or loss at various stock price levels at expiration. It's a vital tool for understanding the maximum risk (the amount you could lose) and the potential reward (the amount you could gain).

Using the risk graph:

• The x-axis of the graph represents the range of possible prices for the underlying stock at the option's expiration.
• The y-axis represents the profit or loss for the option position.
• Look for key points such as the break-even point, which is where the line crosses the x-axis, indicating no profit or loss.

Screenshot guide:

• Strategies button: This is where you switch to a more strategic view of options.
• Trade setup area: Here, you set the specific details of your option purchase.
• Risk graph visibility toggle: Use this to show or hide the risk graph, which provides a visual analysis of potential outcomes.

By examining the risk graph, you can gain insights into how changes in the underlying stock’s price by the expiration date will affect the profitability of your option. This information is crucial for making informed decisions, ensuring that your investment aligns with your risk tolerance and financial goals.

In conclusion, understanding and utilizing the risk graph on the Saxo platform can significantly enhance your ability to manage long-term options effectively. This tool aids in visualizing potential outcomes and helps tailor your trading strategies to better meet your investment objectives.