About Exchange Traded Options (ETOs)

An option is a contract to buy or sell a financial product. For equity options, the underlying instrument is a share or exchange-traded fund (ETF). It establishes a specific price, called the strike price, at which the contract may be exercised, or acted on. And it has an expiration date. When an option expires, it no longer has value and no longer exists.

Options come in two varieties, calls and puts, and you can buy or sell either type. You make those choices - whether to buy or sell and whether to choose a call or a put - based on what you want to achieve as an options investor.

  Buy (Holder) Sell (Writer)
Call Option Right to Buy Obligation to Sell
Put Option Right to Sell Obligation to Buy

Benefits of trading ETOs

Exchange traded options (ETOs) can be used in a variety of ways to profit from a rise or fall in prices (PDF 339KB) including;

  • Protect the value of individual shares or a portfolio
  • Earn income
  • Undertake to buy shares for less than their current price
  • Lock in a buying price
  • Get exposure to shares for limited risk

Explore the wide range of strategies available.

Components of ETOs

There are five key components of an option (PDF 877KB)

  1. The underlying security
  2. Contract size
  3. Exercise or strike price
  4. Expiry date
  5. Premium

How options are valued?

The price (premium) of an option is not pre-set, but is determined by market forces. When the option taker and the option writer agree on a price for the option contract, the trade takes place.

Types of Exchange Traded Options

There are 3 different types of  ETOs available on ASX.

Trading

In Australia, options are traded through three types of brokers:

  • full service brokers
  • discount brokers
  • a combination of trade execution service and limited other services

Your choice of broker will depend on your previous trading experience, your level of confidence and time. Specific to the options market are accredited advisers that have met certain criteria to advise in options.

Risks

Like any investment, options have risks that you need to understand before investing. Specific risks include market risk. You should obtain independent advice from a professional adviser prior to making any final decision.