Presentation on theme: "Timothy Clark Timothy Clark Private Client Adviser B.Comm. ADA 2(ASX) Zurich Securities Pty Ltd."— Presentation transcript:
Timothy Clark Timothy Clark Private Client Adviser B.Comm. ADA 2(ASX) Zurich Securities Pty Ltd
This presentation is designed to give the user a basic understanding of options and various option strategies. Options are an aggressive derivative product and are not suitable for all investors. The unauthorised use of this presentation may result in liability for breach of confidentiality, privilege or copyright. Zurich Securities Pty Ltd AFSL 317392 it’s Directors and their Associates declare that they from time to time hold interests in/and earn brokerage, fees, commissions or other benefits from the financial products mentioned in documents to clients. Any financial product advice contained in this document is unsolicited general information only and has been prepared without taking account of your objectives, financial situation or needs. Zurich Securities Pty Ltd believes that any information or advice (including any financial product advice) contained in this document was accurate when issued. However, Zurich Securities Pty Ltd does not warrant its accuracy or reliability. Zurich Securities Pty Ltd, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. Before making an investment decision based on the above, you need to consider whether the advice is appropriate for your own personal financial circumstances.
Options offer a range of trading and hedging possibilities. Profits can be made when a market goes down, up or sideways. Leverage effects of options to maximise profits.
Company-issued options - are issued by companies for the purpose of raising funds. They give the holder the right, but not the obligation to buy shares at a fixed price on or before a predetermined date.They are usually offered at a discount to the market price at time of issue. Exercising an company issued option results in an increase of issued share capital.
Exchange-traded options are created between investors in the options market. The underlying company is not a party to an options contract, consequently the exercise of an option does not result in an increase in the company’s issued capital.
An option is either the right to buy an asset (Call option) or the right to sell an asset (Put option) for an agreed price on or before a predetermined date. The buyer of the option has the right, but not the obligation, to exercise the option. The seller of the option has the obligation to fulfil the requirements of the contract, if called upon by the buyer of the option to do so. The seller receives a payment (premium) for this obligation.
The underlying parcel is 1,000 shares for equity options and 10 times the index level for index options. Prices are quoted in cents per share for equity options and points per contract for index options. Exercise prices for equity options vary depending on the value of the shares and their volatility. Index option exercise prices are set at 25-point intervals. Exercise requires delivery for equity options and cash settlement for index options.
Contract Size- Generally 1,000 shares Exercise Price- The price at which the option holder may buy/sell the underlying share. Expiry Date- The predetermined expiration date of the option. Underlying Share- The underlying share subject to purchase/sale upon exercise of the option. European Option- can be exercised only at expiry. American Option- can be exercised at any time up until expiry date.
A call option gives the buyer the right but not the obligation to buy a quantity of shares at a particular price on or before the expiry date. Bullish Outlook on the share price Can be used for directional trading or to acquire the underlying share on or before the expiry date.
Buy a ABC May $4.00 Call @ 15 cents Break Even =$4 + 0.15 = $4.15 Max Loss = 15 cents x 1000(contract size) =$150 Stock rises to $5.00, Intrinsic value =$1 Sell call @ $1 x 1000 =$1,000 Profit =$1,000-$150 = $850
A put option gives the buyer the right but not the obligation to sell a quantity of shares at a particular price on or before the expiry date. Bearish outlook on the share price. Can be used for directional trading and for hedging purposes.
Buy a ABC May $4.00 put @ 15 cents Break Even =$4 - 0.15 =$3.85 Max Loss = 15 cents x 1000 (contract size)=$150 Stock falls to $3.00, Intrinsic value =$1 Sell put option @ $1.00 x 1000 =$1,000 Profit = $1,000 – 150 = $850