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XJO premium calculation (newbie Q)

Discussion in 'Derivatives' started by marcusroar, Jan 20, 2020.

  1. marcusroar

    marcusroar

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    Sorry if this is a repost. I did a thorough search but couldn’t find any other thread which answered this.

    I’m interested in buying an XJO put however I cannot for the life of me understand the way these options are quoted on the asx website or in my brokers website.

    Everything I’ve read says that an XJO options is priced by points, and the premium would be calculated by multiplying the points by the multiplier.

    If I’m looking at XJOKK7 (7375 put jan 23) as an example the bid is 2.7 and the ask is 3.1.

    I was wondering what do these decimal values (2.7 and 3.1) actually represent and do they relate at all to the market premium? I kind of expected these values to the points of the xjo contract but I didn’t think that it could be decimal as the xjo contract specifications on the asx website says the tick size is 1.0 (which makes sense).

    thanks!!
     
    barney likes this.
  2. Sharkman

    Sharkman

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    yeah technically they are supposed to be priced in terms of points, then converted using a multiplier (which is $10 per point on the XJO).

    however as you've observed the bid/ask is typically expressed as the number of points divided by 100, for some reason i've yet to confirm. maybe something to do with the standard 100 lot size in use on regular options.

    so if you were to buy the XJOKK7 at the offer you would pay a premium of 3.1 * 100 (lot size?) = 310 points, times the multiplier = $3100 per contract. on expiry you would receive $10 for every point the XJO closes below 7375, per contract.

    i'd also be interested to find out the reason behind why the prices are expressed that way, but for now the easy way to work it out is multiply the bid/ask by 1000 to get the premium in $ per contract.
     
    barney likes this.
  3. marcusroar

    marcusroar

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    Wow! I searched high and low for almost a week to find this thank you!

    How did you actually come to find this info out? Appreciate your answer!
     
  4. Sharkman

    Sharkman

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    i've traded XJO options myself before, i can't remember how i first learnt how it works now, like with a lot of options strategies, once you start trading them yourself it will have become second nature before you realise it
     
  5. cutz

    cutz

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    That's because your broker and the ASX site don't represent quotes per XJO spec sheet. Correct representation of price should be 270/310, Premium price = midpoint x 10 ( the multiplier ) = $2900 per contract.

    As Sharkman suggested you get used to it. If I'm using comsec or the ASX site I just multiply the price shown by 1000 to work out premium per contract. IB shows it correctly so I just multiply the price shown by 10 as per specs.

    Here is some public info from the ASX website
    https://www.asx.com.au/products/equity-options/options-contract-specifications.htm#XJO-Index
     
    barney likes this.
  6. tradefloor

    tradefloor

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    You guys should use a better options platform ;)
     
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