Option pricing and margins
- How do you calculate the dollar value of a premium?
- Where do I find quotes on exchange traded options?
- Do I have to pay margins when I trade options?
- Does ASX pay interest on Cash Margins?
- What is the minimum options order I can place?
- What is the difference between an option and a warrant?
- How can I find a properly qualified broker to give me advice on options trading?
- Are there any ASX charges involved in trading options?
- How are options taxed?
- How can I learn more about options?
- How does covered call writing work?
- I have heard that I can combine margin lending with writing call options. How does this work?
- Can I lodge warrants against my option margin?
- Can I trade options over an index?
- Can I trade options on expiry day?
- Is there a booklet that explains option adjustments?
- What is the difference between a company option and an exchange traded option?
- How likely is it that my written call option will be exercised early?
- What is the process by which exercise notices are assigned to written option positions?
- What happens to naked call writers after being exercised against?
- What if the underlying stock is suspended?
No, this is not true. Around 55% of options are closed out before expiry, around 15% are exercised, and around 30% expire worthless.
It is also important to understand that if an options trade is part of a strategy involving stock or other options, the best result for the trader sometimes is for the option to expire worthless. For example, when a put option is bought to protect a physical stock holding, the best result for the investor is for the stock to increase in price, in which case the put option may well expire worthless. The option trade should always be considered in the context of the overall strategy.
For stock options 10:00am - 4:20pm Sydney time.
For index options 6:00am - 5:00pm and 5:30pm - 8:00pm Sydney time.
To calculate the dollar value of a premium, multiply the quoted premium by the size of the contract (usually 100 shares).
For example, if you purchase one BHP option for a premium of 34 cents, the dollar value of the option is $34.00 (34c x 100).
You can look up option quotes that are delayed by 20 minutes from this site.
If you take an option to open a position, you pay the premium upfront. You will not be called for margins.
If you write an option to open a position, and have not lodged the underlying shares or sufficient collateral, then margins may be payable throughout the life of the option.
The ASX website has a Margin Estimator that may assist you to estimate the amount that will be payable.
Interest on Cash Cover
Under Rule 10.2.5, ASX Clear must pay to a Participant interest on Cash Cover credited to that Participant. ASX Clear may charge and deduct an administration fee.
Interest rate and administration fee on Cash Cover
The interest rate will reflect the earnings rate earned by investing the Cash Cover on a short term or 11.00am basis, minus a 0.65 percent administration fee.
Payment of interest by ASX Clear to Participant
Interest will be calculated on a simple (i.e. not compound) daily basis and credited to each Participant at the end of each month. The interest amount will be included in the Participant's settlement on the first Business Day of the following month. The interest credited will be notified to Participants through DCS.
ASX Clear does not calculate interest at the individual Client Account level. ASX Clear Rules and Procedures do not make any reference to the payment of interest, in any amount at any rate or frequency, by Participants to their clients. Clients need to consult their Client Agreements and Participants need to be satisfied they meet their license obligations under the Corporations Act 2001 (Cth).
You can download a fact sheet that explains the key differences between an option and a warrant (PDF 154KB).
ASX Operating Rules require options advisers to be accredited. A list of accredited options advisers is available.
Yes. ASX Clear charges a contract registration fee of $0.13 plus GST per contract. If you exercise an option, there is an exercise fee of $0.05 plus GST per contract.
You should take taxation into consideration when trading options, just as you would when investing in shares. The taxation of options is a complex area. For a detailed discussion, please refer to the taxation treatment of options (PDF 283KB).
Both introductory and advanced levels online classes are available from this site.
Covered call writing involves writing ASX exchange traded options against shares you own. This strategy usually reflects a view that the underlying shares will trade at or slightly below current levels during the life of the option.
If the share price at expiry is below the exercise price of the option you have written, the option will probably expire worthless. The premium you received for writing the option represents income to you.
Covered call writing involves two risks. The first is that the price of the underlying shares falls significantly. While the income received from writing the option to some extent offsets a fall in the share price, you should understand that the protection offered is limited.
The second risk is that if the stock price rises, your option will probably be exercised. No matter how high the stock price rises, the most you will receive for your shares will be the exercise price of the option. Your net sale price will be this amount plus the premium received for writing the option.
Stock bought on margin can also be used to cover sold (written) calls.
Your margin lender must have an agreement with the ASX Clear Pty Limited. Then a further agreement is required between you and the margin lender. Once this has been completed the stock bought on margin can be lodged as collateral.
You can only use this as specific cover. That is, the stock bought on margin can only be applied against sold calls of the same stock. For example if you have bought 100 BHP shares, this can only be applied against sold BHP calls.
No, Please refer to the up to date acceptable collateral list.
Yes, options over prescribed indices are available for trading. These are trading on ASX Trade just like share options. Normal market maker obligations apply. The traded premium is calculated in points not cents. Please refer to index options.
Yes you can trade Index Options up til 12 noon on Expiry Day. Expiry Day will be the third Thursday of the contract month, unless specified by ASX. Index Options are cash settled using the Opening Price Index Calculation on expiry morning. This means trading will continue (up til 12 noon) after the settlement price has been determined.
Yes, the Explanatory Guide for Option Adjustments (PDF 358KB) explains the various adjustments and provides examples.
Company options are issued by companies for the purpose of raising funds. They give shareholders an opportunity to buy new shares at a fixed price on or before a predetermined date. This gives the company the ability to raise funds for future projects. The exercise of company issued options results in an increase in the company's capital.
Exchange traded options are traded over existing shares. Their exercise results in a transfer of ownership of the underlying shares, and not in an increase in the company's capital. The company is not a party to the contracts traded.
Early exercise of a call option may occur just before the stock goes ex-dividend, where the dividend the investor would receive, if they were to exercise the call, is greater than the interest expense incurred in buying the shares which are the subject of the option ahead of the expiry date. Generally this only occurs on the day before the ex-dividend date.
For in-the-money calls where the corresponding put option still has some value, the rule used by most of the market is that if the value of the dividend is more than the value of the corresponding put plus interest, then the call should generally be exercised for the dividend.
For more information, refer to Early exercise of options.
When the taker of an option decides to exercise that option, they instruct their broker to lodge a Notice of Exercise with the ASX Clear Pty Limited. ASX Clear then randomly assigns that exercise to an account with an open written position in the same Option Series. The following morning, the broker whose client has that account receives the Notice of Assignment, and advises the client that they have been exercised. Settlement of the share transaction that results from exercise of the option takes place T + 3 - that is, three business days after the date the taker of the option exercises the option.
Naked or uncovered call writers must deliver (sell) the required number of underlying shares in T+ 3. Failure to deliver results in fail fees being levied on the client's broker who in turn may pass them onto the client.
In order to satisfy delivery, uncovered writers must buy the underlying shares the day after they are notified, T+1. This trade will be settled 4 days after the date of option exercise. Where this occurs the client's broker can apply to have the CHESS fail fee waived. Buying the shares any later than T+1 however will mean the waiver does not apply and fees for late delivery will be charged.
You can exercise an option (if American Style) at any time up until 7pm on expiry day, regardless of whether the underlying stock is suspended or not. This obviously is of concern to naked call writers, who then have to make alternative arrangements (i.e. borrow) to deliver. There are times, when on expiry day, ASX will open the Option Market (not the underlying stock) to trade in the last hour if the underlying stock is suspended, to facilitate closing of positions.
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