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Types of options

Options vary by the type of asset they are issued over - usually shares, exchange traded funds or market indices and by the expiry time frame

Type of asset

Options are usually issued over shares, exchange traded funds or market indices. Call and put options are available for all asset types. A fourth, more specialised type of option is called a low exercise price option (LEPO). 

Weekly options

By expiring each week of each month, weekly options enable flexible short-term trading strategies without paying the extra time value premium inherent in the more traditional monthly expiring options. You can more cost-effectively trade one-day events such as earnings reports, ABS statistic releases and Reserve Bank announcements. They also may reduce the risk of an entire portfolio of options expiring on a single day each month.

S&P/ASX 200 Index (XJO)

Australia and New Zealand Banking Group (ANZ)

BHP Billiton (BHP)

Commonwealth Bank of Australia (CBA)

Fortescue Metals Group (FMG)

National Australia Bank (NAB)

Newcrest Mining (NCM)

Rio Tinto (RIO)

Santos (STO)

Telstra (TLS)

Westpac Bank (WBC)

Weekly options have the same characteristics as single stock and index options but have limited expiries and strikes available for trading.

Expiry day of the week – Thursday.

Next 3-4 week expiries available.

Limited strikes available – ATM +/- 10 strikes.

Strike intervals are the same as those applicable to standard ETOs.

These trading strategies are provided for educational purposes only and do not constitute financial product advice.

Buying weekly options: Weeklies offer the ability to take a very short-term view on a particular news item or anticipated sudden price movement.

Imagine it's the first week of the month and you expect XYZ stock to move because their earnings report is due out this week. While it would be possible to buy or sell the XYZ monthlies to capitalise on your theory, you would be risking three weeks of premium in the event that you are wrong and XYZ moves against you.

With weekly options you only have to risk one week's worth of premium. This will potentially save you money if you are wrong, or give you a nice return if you are correct.

Be aware that with only a limited time until expiry, the time value of a weekly option decreases faster than a longer term monthly option.

Selling weekly options for income: A popular trade has been to spread the normal last Thursday of the month risk across multiple weekly expiries. Calculating the additional premium you receive from selling four expiries a month rather than one may sound attractive. Options theory may suggest you should generate up to two and a half times the premium. But four times the trades means four times the brokerage, coupled with four times the risk of exercise, which often means costs outweigh the benefits.

Overseas customers have often been using weekly options to spread their expiry day risk across multiple expiries during the month.

The well-known pinning action that takes place in monthly options – whereby a stock tends to gravitate toward a strike price on expiration day – does not seem to happen as much or as strongly with the weekly options.

Instead of selling 100 contracts of monthly options the risk can be spread by selling 25 contracts in each of the weekly expiries.

ASX Online Courses

Both courses have 10 modules with each module taking 20-25 minutes to complete

Reach Markets Trading Courses

Complete suite of online courses from beginner to advanced options education plus trading courses on technical analysis and trading systems. (Free Sign-Up)

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Live Online Webcasts

Two monthly trading webinars designed for you to ask questions live while presenters walk through an introduction to options and advanced options trading. (Free Sign-Up)

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Options Trading Game

Challenge your knowledge of options and sharpen your trading skills.

Next Game: starts 28 June (Rego opens 14 June)

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ETF options

Options on exchange traded funds (ETFs) are amongst the most heavily traded options in the world. They trade just like equity options, with the ETF tracking the price performance and yield of specific indices. ETF options give investors the ability to trade listed options over domestic and international markets with the benefits of collateral lodgement and cross-margining.

Like any investment, options on ETFs have risks you need to understand. You should seek independent advice from a professional adviser before investing.  

ETFs are financial products which hold portfolios of shares which can be designed to closely track the price performance and yield of specific indices. As ETFs trade like stock, options in these products are operationally similar to equity options. Options on ETFs are physically settled and have European-style exercise features.

Buying calls and puts limits the buyer’s risk to the cost of a contract. It’s a fraction of the cost of buying/shorting the actual ETF, but still lets the buyer profit from favourable moves.

Options can also be used to hedge a position, or to create an additional stream of income through writing options on already established ETF positions. 

You trade options on ETFs through your broker via the same account you use to access equity and index options. All trading is based in Australian dollars.

Depending on your strategy, ETP options have similar risks to other types of option, including:

  • potentially unlimited losses if you choose to write options without owning the underlying ETF
  • falls in value as your options approach their expiry data
  • margin calls if you are writing options, and
  • complexity, especially if you need to take offsetting positions.

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