How do Options Work in Australia.
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Options are the most versatile trading instrument ever invented. Indeed they were initially conceived in 1973 to minimise risk in the stockmarket and provide income to leveraged portfolios. Options were introduced in Australia in 1976.
* Since options cost less than stock, they provide a high leverage approach to trading that can significantly limit the overall risk of a trade or provide additional income. Option buyers have rights and option sellers have obligations. Option buyers have the right, but not the obligation, to buy (call) or sell (put) the underlying stock at a specified price up until expiry.
* There are two kinds of options: calls and puts. Call options give you the right to buy the underlying asset. Put options give you the right to sell the underlying asset.
How to use Options in Australia.
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Options can be used in a variety of ways to profit from a rise or fall in the underlying market. The most basic strategies employ the use of a put or call option as a low capital means of profiting on market movement, regardless whether it is up, down or sideways. Options can also be used as insurance policies in a wide variety of trading scenarios. Options provide the same kind of safety net for share portfolios and nest eggs. They also increase your leverage by enabling you to control the shares of a specific stock without tying up a large amount of capital and being at the peril of a merciless market.
The amazing versatility that an option offers in today's highly volatile markets is welcome relief from the uncertainties of traditional investing practices. Options are used to offer protection from a decline in the market price of a stock or an increase in the market price of a stock. They can enable you to buy a stock at a lower price, sell a stock at a higher price, or create additional income. You can also use option strategies to profit from a move in the price of the underlying asset regardless of market direction.
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