What are equity options and how to invest in them?

Equity options are a type of options contract that use shares as the underlying asset. They are the most common type of equity derivative. Like all other options, a long position in an equity option gives the investor the right, but not the obligation, to buy or sell the underlying stock at a set strike price on or before the contract’s expiry date. The buyer pays a price for the right an equity option provides. This price is also known as the premium. Investors can buy equity options to gain exposure in a stock without actually buying or shorting the stock. Similar to other types of options, one contract usually contains 100 shares.

Investors can also use equity options to trade option spreads. With this technique, investors combine long and short options with different strike prices and expiration dates. By doing so, they try to extract profit from the option premiums with minimal risk.

Equity options are generally considered suitable for investors who can bear the loss of capital and have advanced knowledge of this financial product. The loss of capital can be more than the initial investment. Generally, investors who invest in these products have a relatively short investment horizon (less than five years). Some equity options are considered riskier than others. You can find the risk indicator of a specific product in the Key Investor Document (KID), a three-page document that describes the characteristics and risks associated with the product. As well as in the KID, information about contract specifications and the underlying can usually be found on the exchange’s website.

Investing in equity options via DEGIRO

If you buy an equity call option, you have the right to buy the underlying shares at the strike price. When the price of the underlying shares on the market is higher than the strike price of a call option, the option is referred to as “in-the-money”. With DEGIRO, your in-the-money option positions are not exercised automatically. To exercise your option, you will need to send an e-mail to the Order Desk.

Because of the complexity of options, not all DEGIRO accounts give access to this product. Only clients with an Active or a Trader account can trade across a wide range of derivative products. If you want to trade equity options, you are first asked to complete a short knowledge test in your account which can give an indication on whether or not you have sufficient knowledge to invest in these products. Once you have successfully completed the test, equity options are enabled in your DEGIRO account.

Please visit this page to find the derivatives trading hours for exchanges, such as Euronext.

Risk and reward

Investing can be rewarding, but it is not without risk. Like all other financial products, investing in equity options comes with the risk of loss. With a long position in a put or call option, the maximum loss is the premium you paid. If you have a short position in an option, the maximum profit is the premium you received when selling (writing) the option, whether it is a call or a put option. The maximum loss, on the other hand, does differ. A short position in a call option has an unlimited potential loss. For a short position in a put option, the maximum loss is the exercise price multiplied by the contract size and the number of contracts the investor has in a position, minus the received premium.

Investing at DEGIRO

At DEGIRO, we are open and transparent about the risks that come with investing. Before you start to invest, there are a number of factors to consider. It helps to think about how much risk you are willing to take and which products match your knowledge. Additionally, it is not advisable to invest using money that you may need in the short term or to enter into positions that could cause financial difficulties. It all starts with thinking about what kind of investor you want to be. You can read more about the risks of investing in our Investors Services Information documents or our dedicated risk page.

The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products that match your knowledge and experience.


Note: Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products which match your knowledge and experience.

Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products which match your knowledge and experience.