Options Trading

Exchange Traded Options (Options) are a versatile and flexible tool that allow you to employ a range of approaches. Options can be used to complement or refine your existing share strategies, or take advantage of opportunities in ways that owning shares can't.

Options can be used to limit risk or to take on risk to profit depending on your approach. Options can be as simple or as complex as you want.


Benefits of trading Options

Options can be used in a variety of ways, depending on the strategy you can:

  • Manage risk in a falling market - lock in your gains or limit losses.
  • Generate additional income without taking on additional risk.
  • Give yourself time to decide - allows you the freedom to decide whether to invest in specific shares, without being committed to a course of action.
  • Potentially profit from any market direction - rising, falling or going sideways.
  • Provides leverage to potentially increase returns .


How Options Work

There are two types of Options - Call Options and Put Options (refer to below tabs for explanation). These two options can be bought or sold. They can also be used in combinations to create a variety of strategies suited to your risk tolerance.

With options positions it's important to look at the implications of holding options positions from both the stand point of the BUYER (or taker) of the option, and the SELLER (or writer) of the option.

Call Options

 

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1. Bought Call Options

A Call option provides the BUYER with the right (but not the obligation) to buy a specific number of securities, for a specific price, for a set period of time. There is no obligation placed on the holder of the Call option; you have the right to decide to buy or not.

Benefits:

  • Time to decide - whilst the price to buy stock is set.
  • Risk limited to cost of the option premium.


2. Sold Call Options


A seller or writer of an option is obligated to deliver stock if required by the buyer at the agreed price and quantity up until expiry of the option.

Benefits:

  • Receive premium income of the option.
  • Leverage - gain exposure greater than the upfront margin required.
  • Can lodge existing stock as security.

Risks:

  • Possibly unlimited risk (where you don't own the underlying shares & the price rises dramatially).
  • Daily margin requirements - these can be substantial.

Put Options

 

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1. Bought Put Options

A Put option provides the BUYER with the right to Sell a specific number of securities, for a specific price, for a set period of time. No obligation is placed on the holder of the put option; they have the right to any upside, while having the protection in place.

Benefits:

  • Insurance against the downside (if you are holding the underlying shares), with a guaranteed exit/sale price for your shares.
  • Risk limited to the cost of the option premium

2. Sold Put Options:

A seller of an option is obligated to buy the stock if required by the buyer at the agreed price and quantity up until expiry of the option.

Benefits:

  • Receive the premium income of the option.
  • Leverage - gain exposure greater than the margin lodged as collateral.
  • Can lodge stock as security.

Risks:

  • Possibly large losses on positions if the underlying company falls substantially (including to $0).
  • Daily margin requirements - these can be substantial.

How Exchange Traded Options can benefit you?

  • Manage risk in a falling market
  • Generate additional income
  • Potential to profit from any market direction
  • Low cost trading - trade from $34.95.
  • Excellent customer service - from our ASX Accredited Staff;

Options News

Options Seminars

21/09/2011

Register today for a free options seminar in your capital city.

ASX Announcement

02/05/2011

Reduction of Equity Option Contract Size. Download ASX PDF

Contact Us

Phone: 1800 245 698

Email: options@commsec.com.au