Options Training for Private Investors

Most people know what stocks are, but far fewer know what options are and how they work. Options are financial instruments related to value changes in an underlying asset, such as stocks or an index.

You can think of options as synonymous with rights. The buyer of a stock option purchases the right—but not the obligation—to buy or sell stocks at a predetermined price within a certain time period. The seller of options, however, takes on an obligation.

Options are traded on the stock exchange, just like stocks. To trade options, contact your bank, which will arrange what you need.

• Knowledge

The more knowledge you have about the instruments, strategies, and factors that influence the stock and options markets, the greater your chance of good returns—regardless of market climate.

Nasdaq offers various online trainings on options and futures. You can also listen to the Options Podcast, read the Options Blog, and access resources via Optionskurs.nu and Optionsplay.se. Optionsplay also offers a tool to simulate and analyze options strategies.

• Account

You need a regular account with a bank or broker to trade options, just like with stocks. Most banks offer derivatives trading (options and futures) even on ISK accounts. If you don’t already have a derivatives trading agreement, your bank can help you add one to your account.

• Fees

When trading options, you pay fees to both the exchange and your bank or broker. Nasdaq’s fees cover the functioning of the marketplace and ensure all market participants fulfill their obligations. Nasdaq does this by taking on counterparty risk—acting as the buyer to the seller and the seller to the buyer—providing security for market participants. Your bank or broker also charges a commission for executing the trade.

• Risks

All investors should be fully aware of both risks and opportunities when trading financial instruments. It’s important to gain enough knowledge to understand the risk you’re taking with a particular instrument or strategy. With options and futures, risk varies greatly depending on the strategy. You can reduce risk or use high-risk strategies to speculate and aim for high percentage returns.

There are two categories: call options and put options.

• Call options give the holder the right to buy an underlying stock at a certain price within a certain time. This is beneficial if the stock price rises.
• Put options give the holder the right to sell an underlying stock at a certain price within a certain time. Even if the stock price falls significantly, the holder can sell at the predetermined price—useful for protecting holdings or profiting in a declining market.

You can buy and sell options just like stocks, and you don’t have to exercise the right to buy or sell the underlying stock. You can simply buy an option and sell it during its term. When buying an option, you can never lose more than what you paid for it.

Issued Call and Put Options:

We’ve covered buying call and put options. There are also two base positions when selling options. Selling options you don’t own is called issuing options—you sell a right and take on an obligation. This may seem risky, but you get paid for taking on the obligation. There are strategies with issued options that can have lower risk than stock holdings, especially when combined with stocks and other options positions.

Options offer great flexibility for stock market investors to tailor strategies to their market outlook. With options, you can:

• Generate returns in rising, stagnant, or falling markets
• Sell stocks at a higher price or buy them at a lower price than the market
• Reduce or eliminate risk in a holding or portfolio
• Create leverage for high percentage returns with less capital
• Plan stock purchases or sales by securing a future price
• Optimize exposure based on expected price movements
• Create income strategies by combining options with stock holdings

Standardized options or futures series listed on the exchange have codes that show the underlying asset, expiration year and month, type of option, and strike price.

Example :

• Underlying stock is shown by its short name, e.g., ERICB for Ericsson B
• Expiration year is the last digit of the year, e.g., 5 for 2025
• Option type and expiration month are shown by a letter: A–L for calls, M–X for puts
• Strike price is shown by the last digits, e.g., 70 means the strike price is 70 SEK. In Finland the strike price would be shown in Euro instead.
• Adjustments due to splits or new issues are marked with X, Y, Z, or Q