What are Exchange Traded Options?
An option is a contract between two parties conveying a right, but not an obligation to buy (Call option) or sell (Put option) an underlying security at a specified price, within a specified time for an agreed price. Exchange Traded Options or ETO’s offer client’s the potential to benefit from share price movements without having to hold the underlying shares. Client’s are able to profit from both upward and downward movements in the underlying shares over which the options are traded.
For a call option, the value of the option will increase as the underlying asset goes up.
For a put option, the value of the option will increase as the underlying asset goes down.
Every option contract has an underlying security (or index): ANZ, BHP, RIO, TLS, XJO etc, an expiration date: June, July 2020 etc, type: Call or Put, premium or price, and a strike price.
COMPONENTS OF AN OPTION
Rights vs Obligations
Contract size – 100 shares
Expiry day – Last Thursday of the month for monthly contracts
Every Thursday for weekly option contracts
Contract value – $10 per point
Expiry Day – Third Thirday of the month