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Fact Sheet
Using index options, it only takes one simple transaction 4. Minimise the Cost of Trading
to hold a view across the broad market. The same XJO Index Options can be used as margin offsets if you
principles that apply to buying and selling stock options are trading other options and cost considerably less
apply to index options. They offer you the investment and than buying every security in the index.
risk management tools used by fund managers.
How do they work?
XJO Index Options cash settle against the value of the
S&P/ASX 200 Index and are European style options. Index options – A trading example:
Unlike futures-styled index options where the underlying is Let’s say that in July 2009 the S&P/ASX 200
a futures contract, the XJO is a premium-upfront option. Index is at 3800 points and you think the market is going
to increase over the next three months. As an alternative
For all share investors, large or small, this means
to buying a portfolio of shares directly, you decide to buy
you can:
a September 3800 S&P/ASX 200 call option for 90
• p
articipate in many of Australia’s leading companies points or $900.
in one trade as a cost-effective alternative to stock
In September the S&P/ASX 200 Index has risen to 4200
ownership
points and the September 3800 call is now trading at
• p
rotect the value of your share portfolio e.g. by the 430 points (most of the time value has decayed away by
purchase of an index put option now and there is mainly intrinsic value left). You decide
• earn extra returns e.g. by selling an index call option to “close out” your position by selling the September
• diversify your portfolio 3800 call option and make the following profit:
• p
rofit on the performance of the benchmark stocks
Market Premium
used by professional investors
Premium Value
• tailor your exposure to take advantage of limited
risk strategies. July: Buy 3800 call 90 points $900
Disclaimer: Information provided is for educational purposes and does not constitute financial product advice.
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