Options Trading Australia is a popular way to speculate on price movements in underlying assets without taking ownership of the asset. They are available to trade in both Australian and overseas markets and are often less expensive than directly buying or selling shares. However, they can be a more complicated form of investing and carry a greater risk of loss than direct share trading. If you’re considering options, it’s important to develop a clear strategy and seek independent financial advice.
The main types of options are call options and put options. With call options, you have the right (but not the obligation) to buy an asset at a fixed price, known as the strike price. With put options, you have the right to sell an asset at a fixed price. The strike price is determined by the market and influenced by factors such as the asset’s current market price, time to expiration and implied volatility.
Options Trading in Australia: A Beginner’s Guide
When you buy an option, you pay an upfront fee to the seller, known as the premium. This is a fraction of the total value of the option and works like an insurance policy. You can also sell options over securities you don’t own under certain circumstances, known as ‘naked’ transactions, but these are higher risk than covered options.
If you hold an option, you can choose to exercise it at any time before expiry (American style) or only at expiry (European style). You will be required to maintain sufficient cash or collateral in your account (known as margin) to cover your liabilities under the option. The level of margin required varies and is informed by the option’s strike price, time to expiry and implied volatility.
