Home — Finance Understanding listed equity options in Sydney

Understanding listed equity options in Sydney

9
0

Listed equity options are financial contracts that give the holder the right, but not the obligation, to buy or sell shares at a predetermined price within a specified period. Equity options are traded on exchanges and can be used to speculate on share prices’ future direction or hedge against potential losses in an underlying portfolio of shares.

equity options

What are some listed equity options in Sydney?

Below is a list of some equity options that are listed on the Sydney Stock Exchange:

  • BHP Billiton plc (BHP)
  • Rio Tinto plc (RIO)
  • Woodside Petroleum Limited (WPL)
  • Santos Ltd (STO)
  • Origin Energy Limited (ORG)
  • Oil Search Limited (OSH)
  • Apache Corporation (APA)

How to trade equity options

Open a brokerage account

If you’re looking at trading equity options, you will need to open a brokerage account with a broker that offers options trading as a service. Equity options are unavailable through all brokers, so it is essential to check beforehand.

Choose an equity option.

Once you have opened a brokerage account, you must choose an equity option to trade. There are many types of equity options available, so it is essential to research and select the option that best suits your investment goals and risk tolerance.

Determine the price and expiration date

Once you have chosen an underlying asset for your option, you will need to determine the price at which you would like to buy or sell the option and the expiration date of the option. The market conditions determine the price of an equity option at purchase, and the exchange sets the expiration date.

Place your order

Once you have determined the price and expiration date, you must place the order with your broker. You will need to specify whether you are buying or selling the option, whether it is a call or put option, and the number of shares you would like to trade.

Monitor your position

After you have placed your order, you will need to monitor your position to see if it is profitable or not. If the share price moves in the desired direction, your work will become profitable. However, if the share price moves against you, your position will start to lose money.

It is important to remember that equity options are a risky investment, and you can lose money if the share price moves against you. However, if used correctly, equity options can be valuable for hedging or speculation.

The risks of trading equity options

Volatility

Equity options are subject to higher levels of volatility than shares, as they are sensitive to changes in the underlying share price, time to expiry and interest rates. It can make them more difficult to trade profitably, particularly for inexperienced traders.

Limited liquidity

Liquidity is the ability of a market to allow trades to be executed quickly and at low costs. Equity options tend to have inferior liquidity than cash equities, so it may be more challenging to find a buyer or seller when you want to trade. It can lead to wider spreads between the bid and ask prices and increased transaction costs.

Expiry risk

All equity options have an expiry date, after which they cease to exist, in contrast with shares, which do not have a set expiry date. If you hold an equity option that expires out-of-the-money (OTM), you will lose the entire premium paid for the option.

The benefits of trading equity options

Leverage

Equity options allow traders to gain exposure to underlying shares with less capital than would be required to buy the shares outright. Options provide leverage, meaning that a slight movement in the share price can result in a significant profit or loss.

Risk management

You can also use equity options to hedge against losses in an underlying portfolio of shares. By buying put options, traders can protect themselves against a fall in the share price. Conversely, by buying call options, traders can insure against a rise in the share price.

Flexibility

Equity options offer traders a high degree of flexibility in trading strategies. You can use numerous methods to profit from movements in the underlying share price, ranging from simple calls and puts to more complex strategies like straddles, strangles, and butterflies.

LEAVE A REPLY

Please enter your comment!
Please enter your name here