Options - a few questions

[ellehcim]

I am new to all this and am a bit confused about the idea of options. I understand the concept of having an option to buy shares at a specified price, but there are a few things I don't understand:

1. can someone confirm if this is right for me? when you buy an option, you pay to acquire it (eg say the listed price is 5c) then when you exercise it you pay to acquire the shares (say the exercise price is 15c) so the total you pay for the option is 20c? And in this example the 5c is paid to whoever owns the option and the 15c to the company?

2. can you buy options that are not listed on asx? I have seen some options which come up on commsec but when I search the stock on asx it says there are no options available over the stock. (eg FNT).

3. how do you exercise an option once you have it? through a platform like commsec or do you have to wait for a paper confirmation?

4. do you buy one option to exercise over one share?

Sorry if this is a bit basic but I'm just a bit confused!

 

[Pommiegranite]

I am new to all this and am a bit confused about the idea of options. I understand the concept of having an option to buy shares at a specified price, but there are a few things I don't understand:

1. can someone confirm if this is right for me? when you buy an option, you pay to acquire it (eg say the listed price is 5c) then when you exercise it you pay to acquire the shares (say the exercise price is 15c) so the total you pay for the option is 20c? And in this example the 5c is paid to whoever owns the option and the 15c to the company?

2. can you buy options that are not listed on asx? I have seen some options which come up on commsec but when I search the stock on asx it says there are no options available over the stock. (eg FNT).

3. how do you exercise an option once you have it? through a platform like commsec or do you have to wait for a paper confirmation?

4. do you buy one option to exercise over one share?

Sorry if this is a bit basic but I'm just a bit confused!

As I never buy options....(no I'm not that stinking rich!!), I leave it to someone else to answer.

BUT

if I may add a further question.

5. What happens to options should the company you have options in is taken over before the excercise date?

 

[reece55]

I am new to all this and am a bit confused about the idea of options. I understand the concept of having an option to buy shares at a specified price, but there are a few things I don't understand:

1. can someone confirm if this is right for me? when you buy an option, you pay to acquire it (eg say the listed price is 5c) then when you exercise it you pay to acquire the shares (say the exercise price is 15c) so the total you pay for the option is 20c? And in this example the 5c is paid to whoever owns the option and the 15c to the company?

2. can you buy options that are not listed on asx? I have seen some options which come up on commsec but when I search the stock on asx it says there are no options available over the stock. (eg FNT).

3. how do you exercise an option once you have it? through a platform like commsec or do you have to wait for a paper confirmation?

4. do you buy one option to exercise over one share?

Sorry if this is a bit basic but I'm just a bit confused!

OK, Wayne is our resident expert here, but I don't mind giving you the basics....

1). First, there are two types of options - put and call. If you are the buyer, you have the right but not the obligation to buy or sell shares a certain price. Calls profit from when the share goes up, puts when the share goes down/ For this right, you pay a premium up front and then the exercise price if you chose you. From here, we have American and European option types, with American exercisable any time prior to expiry and Euro only at expiry.

2). I think you may be confusing OTC options and other listed options. OTC (Over the Counter) options are options over the leading stocks, and normally trade in lots of 1000, so each contract represents 1000 shares of the underlying securities. Your particular example, FNT may not have option under their code if you search via the ASX site, but try FNTO - these are options that are listed by the Company themselves and don't trade on the same system that the OTC options do.

3). Depends - if, like your example, you have a Company issued option, the money will go the Company directly and most likely you will need to send it to the registry. With OTC, I have never done it before, but you would settle this with your broker.

4). Depends - OCT are normally 1 contract:1000 shares, but company issued are normally 1:1.

Cheers
Reece

 

[reece55]

As I never buy options....(no I'm not that stinking rich!!), I leave it to someone else to answer.

BUT

if I may add a further question.

5. What happens to options should the company you have options in is taken over before the excercise date?

Pommie, if it's a scheme of arrangement, you would probably get some scrip - but regardless, you will be compensated, the ASX listing rules are very strict on this.....

Cheers
Reece

 

[bvbfan]

OTC doesn't exist in Australia as far as I know

Exchange traded options - ETO's are traded on the Clicks platform I think
1000 shares per option generally

There are also company issued options and they trade via Seats which is the same platform as shares. And they are 1 to 1 so to get 10,000 options converting into shares you would have to buy 10,000

I'm not 100% sure if this is correct though, about clicks and seats.

As for a takeover of company options, the bidder generally must make an offer for the options as well as shares to account for time value of the options.

 

[Damuzzdu]

bvbfan,

Options platform used to be called clicks, it is now called ITS.

http://www.asx.com.au/investor/futures/trading_information/its.htm

Exchange traded options and futures are traded on a screen based trading system called the Integrated Trading System (ITS). Brokers have terminals in their office from which they can view the market, and execute trades with the click of a mouse button.


Cheers
John