Exchange Traded Options: An Introduction to Trading Options on the ASX

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Exchange traded options are a leveraged financial product provided by the ASX. They are classified as a derivative, which means their value derives from a company share.

This guide is part one in our series to help traders and investors understand how to utilise options.

Published in: Economy & Finance
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Exchange Traded Options: An Introduction to Trading Options on the ASX

  1. 1. EXCHANGE TRADED OPTIONS Part 1: An introduction to trading options TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au
  2. 2. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au What are Exchange Traded Options? 1 Exchange Traded Options are a financial product provided by the ASX.
  3. 3. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au What are Exchange Traded Options? 2 Options are classified as a derivative and a leveraged financial product.
  4. 4. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au What are derivatives? 3 A derivative’s value derives from an underlying variable asset. Options derive their value from a company share or an index.
  5. 5. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au What is leverage? 4 Leverage occurs when financial instruments can increase exposure to price movements.
  6. 6. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au How do options work? 5 An option is a contract in which the buyer has the right but not the obligation to buy or sell a stock at a stated price at any time during the life of the option.
  7. 7. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au How do options work? 6 You can view it as an insurance contract between a buyer and seller where the buyer has the right to take up on the contract if and when they choose...
  8. 8. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au How do options work? 7 Where the seller will receive a premium to insure the buyer.
  9. 9. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Who uses options? 8 Exchange traded options have various uses for both traders and investors.
  10. 10. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Some of these uses are: 9 Insuring a Stock or Portfolio.
  11. 11. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Some of these uses are: 10 Insuring a Stock or Portfolio. Locking in a buy or sell price of a stock.
  12. 12. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Some of these uses are: 11 Insuring a Stock or Portfolio. Locking in a buy or sell price of a stock. Income Strategies using the Collateral Value of a portfolio.
  13. 13. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Some of these uses are: 12 Insuring a Stock or Portfolio. Locking in a buy or sell price of a stock. Trading a view of the underlying stock. Income Strategies using the Collateral Value of a portfolio.
  14. 14. Why trade options? 13 Options give traders the advantage of trading a leveraged position in different directions of the market.
  15. 15. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Why trade options? 14 With education and experience, an options trader can profit from up down and sideways moving markets.
  16. 16. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Why trade options? 16 The versatility means an options trader can act on opportunities within different market conditions.
  17. 17. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Types of options There are two different types of options available: 17
  18. 18. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Types of options There are two different types of options available: 18 1 Put Options
  19. 19. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Types of options There are two different types of options available: 19 1 2Put Options Call Options
  20. 20. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Put options The buyer of a put option has the right, but not the obligation to sell a stock at a stated price (strike price) at any time during the life of the option. 20
  21. 21. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Call options The buyer of a call option has the right, but not the obligation to purchase a stock at a stated price (strike price) at any time during the life of the option. 21
  22. 22. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au For example 22 Put option 37.00 strike price BHP Trading at 36.50
  23. 23. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au For example 23 Put option 37.00 strike price BHP Trading at 36.50 You have the right but not the obligation to sell stock at 37.00 which is .50c more than you can on the market
  24. 24. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au For example 24 Call option 36.00 strike price BHP Trading at 36.50
  25. 25. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au For example 25 Call option 36.00 strike price BHP Trading at 36.50 You have the right but not the obligation to buy stock at 36.00 which is .50c cheaper than you can on the market.
  26. 26. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Conclusion Essentially, options provide versatility for traders, and create ways to trade different conditions. 26
  27. 27. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Conclusion It is vital that before entering the market, you learn the skills and gain the experience to trade confidently. 27
  28. 28. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Interested in becoming a trader? The right education is essential if you want to reach your trading goals. Register with us today to learn more about our trading education programs. 28
  29. 29. Warnings and important information. Any advice contained in this communication is general only and does not consider your objectives, financial situation or needs, and you should consider whether it’s appropriate for you. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) at www.traderscircle.com.au and the relevant Product Disclosure Statement (if there is one available) first. Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only act on our recommendations if you are confident that you fully understand what you are doing. Past returns do not reflect future returns, and it is also possible to make significant losses. We employ expert traders and use strategies that maximise returns and minimise risk. However, there is always a risk of loss when trading and investing. This is general information, and is not prepared for your specific investment objectives, financial situation or needs. Consult a licensed investment adviser before making investment decisions. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au

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