index_options

index_options - ASX 297_DL Index options 4/12/02 11:24 AM...

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Unformatted text preview: ASX 297_DL Index options 4/12/02 11:24 AM Page 1 How can I find out more? • speak to an ASX accredited derivatives adviser at your broker’s office • read the free ASX booklet ‘Understanding options trading’ • attend an ASX options course • phone 1800 028 585 • email options@asx.com.au • visit www.asx.com.au/options • to look up index option prices use the code XJO. Trade the top 200 stocks in the market with just one transaction This material is general and summary information only. Any advice or recommendation, (including relating to financial products) should be obtained from an Australian financial services licensee or other professional adviser. To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) suffered by anyone acting or refraining from acting as a result of this material is accepted by ASX. © Copyright ASX Operations Pty Limited ABN 42 004 523 782. 2002. All rights reserved. This publication should not be reproduced, stored in a retrieval system or transmitted in any form, whether in whole or in part, without the prior written consent of ASXO. Index options S&P™ is a trademark of Standard & Poors division of The McGraw-Hill Companies, Inc. ASX200™ is a trademark of ASX Operations Pty Ltd ABN 42 004 523 782. Edition 2 printed April 2002 Phone 1800 028 585 or visit www.asx.com.au/options Trade the top 200 stocks in one transaction ASX 297_DL Index options 4/12/02 11:24 AM Page 2 Index options S&P/ASX 200 Index Index options - a trading example: 4000 3500 2000 1500 1000 500 • protect the value of your share portfolio 1. One easy transaction • diversify your portfolio Buying a call option over the S&P/ASX 200 index gives you exposure to a share portfolio of 200 of the largest stocks on the market. This can be an effective way to invest if you have limited funds. Let’s say that in January the S&P/ASX 200 Index is at 3400 points and you think the market is going to increase over the next three months. As an alternative to buying a portfolio of shares directly, you decide to buy a March 3400 S&P/ASX 200 call option for 90 points or $900. In mid-March the S&P/ASX 200 Index has risen to 3590 points and the March 3400 call is now trading at 210 points. You decide to ‘close out’ your position by selling the March 3400 call option and make the following profit: Why should you invest in index options? • earn extra returns Nov-01 May-01 Nov-00 May-00 Nov-99 May-99 Nov-98 May-98 Nov-97 May-97 Nov-96 May-96 Nov-95 May-95 Nov-94 May-94 Nov-93 0 May-93 • participate in many of Australia’s leading companies in one trade as a cost-effective alternative to share ownership 2500 Nov-92 For all share investors, large or small, this means you can: 3000 May-92 Index options over the S&P™/ASX 200™ Index provide wide coverage of the share market. It only takes one simple transaction to hold a view across the broad market. • profit on the performance of the benchmark stocks used by professional investors • tailor your exposure to take advantage of limited risk strategies. What is the S&P/ASX 200 Index? Regarded as a leading benchmark by professional investors for broad movements in the stockmarket, the S&P/ASX 200 index reflects the prices of the largest 200 stocks currently listed on ASX, and represents almost 90% of the market as a whole. The growth in the index shown in the following graph is an indicator of the increase in the price of shares traded on ASX in general. Premium 2. More trading opportunities With the ease of trading and low transaction costs, you can gain short-term exposure to market moves and can profit from small changes due to leverage. You can take advantage of trading opportunities whilst leaving your share portfolio intact. Advanced investors can also short the market, which can lead to increased trading opportunities. 3. Insure the future of your share portfolio Buying an index put option helps protect your share portfolio from stock market downturns without changing the actual holding. It enables you to reduce the overall market risk of holding shares in falling markets. 4. Minimise the cost of trading Index options can be used as margin offsets if you are trading other options. Index options also cost considerably less than buying every security in the index. Premium Value Early January: Buy 3400 call 90 points Mid March: Profit* $900 Sell 3400 call 210 points $2,100 120 points $1,200 *Excluding transaction charges and commissions. The same principles of buying and selling stock options apply to index options. They offer you the investment and risk management tools used by fund managers. To maximise these opportunities, it is important to have a sound understanding of the concepts and risks involved. If you have not traded options before, be sure you understand the risks and rewards of options trading by consulting with an ASX accredited derivatives adviser prior to trading. ...
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