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Understanding Options Trading Australian Securities Exchange ASX

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Category : Business » Stock Trading

Source : www.asx.com.au | Size : 874670

Understanding. Options Trading. Disclaimer of Liability . trading price of each stock is recorded. Once. all stocks in the index have opened, an index .

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Content Summary :

Using an index call option to trade a bullish view of the market You are expecting the broad stockmarket to rise over the next 3 months. Assume the index is at 6300. As an alternative to buying a portfolio of shares directly, you decide to buy a 3 month 6300 index call option for 70 points, or $700 (plus fees and commissions). That gives you the right, but not the obligation, to “buy” the index at a level of 6300 at expiry. Ignoring brokerage, your break even point at expiry is 6300 + 70 = 6370. The most you are risking in this trade is $700, the cost of the option. You have potentially unlimited profits. At expiry, for every point the index is above your break-even point of 6300 points, you will make a profit of $10. Two months later, it turns out that you were right in your prediction. The value has increased as shown in the table below:

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