LEPOS_Brochure - file for postscript 9:43 AM Page 3 LEPOs...

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Unformatted text preview: file for postscript 26/11/02 9:43 AM Page 3 LEPOs The benefits of share futures with the flexibility of options FSR TERMINOLOGY CHANGES ASX has changed its business framework for trading, clearing and settlement. As a result there have been changes to the terminology used in this document. OLD TERM NEW TERM Options Clearing House Pty Ltd OCH ASXF Pty Ltd ASX Futures Exchange ASXF Exchange ASX Business Rules SCH Business Rules OCH Business Rules OCH Derivatives Clearing Rules OCH Clearing Rules ASXF Exchange Business Rules ASXF Business Rules Broker Australian Clearing House Pty Ltd ACH ASX ASX PO Participating Organisation RIOT Non-Broker Participant (NBP) Limited Purpose NBP NSSP Non sponsoring settlement participant Security Securities Shares Derivative DTF or Derivatives Trading Facility Clearing Participant Only (currently derivatives only) Third Party Clearer Non-CHESS Approved Security Foreign Portal Dealer Participating ASX Security Participating Foreign Security Participating Foreign Exchange ASX Market Rules ASTC Settlement Rules ACH Clearing Rules ASX Market Rules ASX Market Participant or Market Participant (may also be a ACH Clearing Participant and/or ASTC Settlement Participant) Market Participant / Trading Participant (may also be a ACH Clearing Participant and/or ASTC Settlement Participant) ASX Market Participant or Market Participant (Trading Participant only for selected products) and Market Maker General Settlement Participant Specialist Settlement Participant Account Participant Financial Product (except for overseas products) Financial Product DTP or Derivatives Trading Platform Direct Clearing Participant General Clearing Participant Non-CS Approved Product Overseas Portal Dealer Participating ASX Traded Product Participating International Financial Product Participating Overseas Exchange For further details of the Financial Services Reform terminology changes, please visit www.asx.com.au/fsr.htm. file for postscript 26/11/02 9:43 AM Page 4 Trade Futures? Trade Shares? With ASX LEPOs you can do both in one simple transaction Many traders are familiar with the benefits of share futures. For a low initial margin payment you get leveraged exposure to price movements in the underlying shares. You can take potentially highly profitable speculative positions, or reduce your risk by locking in the purchase or sale of the underlying shares. ASX LEPOs provide you with the benefits of share futures, plus some of the advantages of options. LEPOs are Low Exercise Price Options. Buying a LEPO gives you the right to buy 1,000 of the underlying shares at a specified future date. In return you pay the exercise price (1 cent per share) plus you pay or receive daily margins as the share price moves, just like share futures. ASX is the home of Australia’s primary share market, and ASX lets you trade LEPOs over many of Australia’s leading stocks, including ANZ, BHP, FGL, MIM, NAB, NCP, RIO, TLS, WBC, and WMC. ASX market makers supply liquidity, so you can see prices on screen continuously during trading hours, and trading is easy. file for postscript 26/11/02 9:43 AM Page 5 Trading the future of ANZ Let’s say that in April 2002 you had $18,000 and wished to buy ANZ shares (when the stock was at $17.60). At this time you could have bought 1,000 shares. As an alternative to buying only 1,000 shares you used the $18,000 and purchased 30 June 2002 ANZ contracts. The initial risk margin would have been around $600 per contract or $18,000 total. This gave you exposure to 30,000 shares or 30 times the potential profit/ loss of just purchasing the shares. ANZ Share Price $ 20.00 19.60 19.20 18.80 18.40 18.00 17.60 17.20 Feb 02 Mar 02 Apr 02 May 02 Jun 02 In the chart above ANZ’s share price increased to $20.35 in mid June 2002. If you sold the 30 contracts your profit would have been approximately $82,500*. In comparison, if you had sold the 1,000 shares your profit would have only been around $2,750. However it is important to note that if the share price of ANZ had fallen then you would have a loss 30 times greater than just purchasing shares. You should understand that leverage works for profit as well as loss, and that LEPO trading is for experienced investors. 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 Advisor prior to trading. * Excluding brokerage and transaction fees. file for postscript 26/11/02 9:43 AM Page 6 Advantages of ASX LEPOs 1. Leveraged exposure to a stock or index When you open a contract you gain exposure to the full value of the underlying securities or index but pay only a fraction of the full premium upfront. This potentially provides a greater return. 2. Reduced cash outlay LEPOs are a cost-effective alternative to borrowing, to fund a purchase of shares. For example, the borrowing costs are generally less than for margin lending. You have a lower cash outlay for the same level of exposure to the market than with a direct investment in shares. 3. Many top stocks and deep liquidity ASX is the home of Australia’s primary share market, so you have the widest choice of stocks to choose from and the most liquid markets available. 4. Margin Offsets C redit margins from existing open option positions may be used to reduce the margin payable. This can further reduce the cash outlay when opening a contract. For example, if a credit margin of $5,000 is held with OCH as a result of current positions, the risk margin liability on a LEPO purchase will be reduced by the credit of $5,000. 5. No risk of early exercise LEPOs are European style options, meaning they are only exercisable at expiry. Therefore the seller need not be concerned about the possibility of early exercise. file for postscript 26/11/02 9:42 AM Page 1 How can I find out more? • Speak to an ASX Accredited Derivatives Adviser (Level 2) at your broker’s office • Attend an ASX advanced options course • Phone: 1800 028 585 • Email: [email protected] • Visit: www.asx.com.au/lepos ASX LEPOs provide you with the benefits of share futures, plus some of the advantages of options. file for postscript 26/11/02 9:43 AM Page 2 Please note: Past performance of ANZ’s share price is not an indication of future returns. Disclaimer This material contains information only. ASX does not represent or warrant that it is complete or accurate. The information is for education purposes only and any advice should be sought from a professional adviser. If you are seeking advice (including a recommendation or opinion) about a financial product you should consult an Australian financial services licensee. 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. (”ASXO“) 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. Phone 1800 028 585 or visit www.asx.com.au/lepos ...
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