FAQ

Should you choose options with about a month remaining because that is when most of the decay is?

Question: If you short options, should you choose options with about a month remaining because that is when most of the decay is? Response: Shorting (or writing) options is a strategy used to generate income through receiving a premium for selling the right either to buy or sell an option. The premium the option writer…

What would be the difference/advantage of buying as opposed to selling an option?

Question: I understand that you buy a call when you think that the market is going up, and you buy a put when you think it is going down. Does it mean the reverse when you sell a call and when you sell a put, ie sell call when trending down and sell put when…

What is the difference between an exchange traded option and a company option?

There are key differences between Exchange Traded Options (ETOs) and Company Options. An option is either the right to buy (a call option) or the right to sell (a put option) the underlying asset for an agreed price on or before the predetermined date. Company options are call options which may be issued to shareholders…

Is it better to be a buyer or a seller of an option?

Question: What’s the difference between being a buyer or seller of an option? And what are the advantages and disadvantages of each? Response: An option is either the right to buy (a ‘call’ option) or the right to sell (a ‘put’ option) an underlying asset for an agreed price on or before the predetermined date….

What is a popular options strategy for traders?

Question: What is a popular options strategy for traders? Response: Covered Calls – Generating additional income from your stocks This options strategy provides a way to increase income from stocks you already hold, using what is known as the ‘Covered Call’ strategy. This strategy supplements the return on a share investment, which is typically capital…

What happens if I hold a put option on a stock that’s suspended from trade?

Question: If I hold a put options contract on a stock that is suspended from trade on the ASX, and is subsequently wound up, do I receive any return?   Response: The buyer of a put option has the right to sell the underlying stock at a particular price on or before a specified date. A…

How to buy shares for less than their current price

It says on the ASX website that options lets me buy shares for less than their current price. Can you please explain what this means.  The Exchange Traded Options Market consists of two types of options 1.    Calls 2.    Puts With the holder of a call option having the right, but not the obligation to…

What are covered calls and how can you profit from them?

Trading Strategy: The Covered Call Carl holds 1,000 Woolworths (WOW) shares, currently trading at $26.50. He receives company dividends as income from holding these shares, but he is looking for an opportunity to generate additional income from his investment. Carl’s market outlook for WOW is for the share price to remain steady over the short…

Before you start trading options – ask yourself these 5 questions

When I started trading, I merely focused on what I was going to buy with all the money I planned on making. Needless to say, the money went within my first 6 months of opening an account. What happened? Well, as they say, a fool and his money are soon parted. I was a fool…

Should I buy options that are in the money or out of the money?

There is no wrong and right answer to this question. Whether you decide to buy in the money or out of the money, options will be totally dependant on your trading strategy and tolerance towards risk. However we will discuss some differences between trading options at various strike prices. In the money options are obviously…