Options trading is an extremely high-risk investment product. Before engaging in options trading, please thoroughly review the following documents:
- Options Product Disclosure Statement (PDS)
- Target Market Determination (TMD)
- ASX's Understanding Options Trading Handbook
1. Introduction to Options
An option is a financial derivative that gives the buyer the right (but not the obligation) to buy or sell an underlying asset at a specific price (strike price) on or before a certain date (expiration date). Key characteristics include:
- Call Option: Right to buy the underlying asset
- Put Option: Right to sell the underlying asset
- American Style: Can be exercised anytime before expiration
- European Style: Can only be exercised at expiration
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2. Types of Options
By Right Type
| Type | Description |
|---|---|
| Call | Buyer profits if underlying price rises above strike |
| Put | Buyer profits if underlying price falls below strike |
By Exercise Style
- American Options: Flexible exercise (e.g., most stock options)
- European Options: Rigid exercise (e.g., index options)
By Underlying Asset
- Stock options
- Index options
- Commodity options
- Currency options
3. Key Options Terminology
Core Concepts
- Strike Price: Predefined buy/sell price
- Expiration Date: Last exercise date
- Open Interest: Active contracts in market
Moneyness:
- ITM (In-the-Money): Profitable if exercised
- OTM (Out-of-the-Money): Unprofitable if exercised
- ATM (At-the-Money): Strike ≈ Current price
Common Strategies
- Straddle: Buy call + put (same strike/expiry)
- Strangle: Buy call + put (different strikes)
- Protective Put: Own stock + buy put
- Covered Call: Own stock + sell call
4. Options Trading FAQ
Trading Basics
Q: What's the minimum trading unit for US options?
A: 1 contract (typically representing 100 shares).
Q: Are pre/post-market trades allowed?
A: No. Trading hours are 9:30 AM - 4:00 PM ET.
Q: How are expiring ITM options handled?
A: Automatic exercise if ≥$0.01 ITM (unless manually canceled).
Execution & Settlement
Q: Can I exercise options early?
A: Only American-style calls (with sufficient funds).
Q: What happens if I lack funds/stocks at expiry?
A: Broker may auto-close positions or adjust exercise quantities.
Product Specifics
Q: Which expirations are supported?
- Stocks: Friday expirations only
- Indices: Mon/Wed/Fri expirations
Q: How to identify weekly vs monthly index options?
A: Weekly options show "[W]" in expiration date.
Q: Which indices support options trading?
A: SPX, DJX, NDX, VIX, XSP, NANOS (more coming soon).
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Risk Management
Buyer Risks
- Premium loss
- Time decay (theta)
- Volatility changes
- Liquidity risk
Seller Risks
- Unlimited potential loss (naked calls)
- Early assignment
- Margin requirements
Always maintain adequate collateral and position sizing.
For full risk disclosures, refer to the Options PDS.