Trading options is similar to buying an insurance policy. You pay a small fee (called premium or price of the option) and get the right, but not the responsibility to buy or sell something for a fixed amount. If things go as expected, you make money with little investment, but if something unexpected happens, you lose your investment.
Options trading in Australia is more complicated than buying traditional assets because many factors affect them. The value of an option can depend on time, volatility, interest rates, dividends, stock price, market direction, etc. It’s important to know what options you deal with since call and put options’ values vary.
Stock market investors tend to spend most of their time researching traditional assets before investing. However, when trading with options, it’s more important to research what type of option you are dealing with, how its value is affected by different factors and what can influence the outcome of your trade. If you want to become great at trading options in Australia, you have to be aware that there are three types of options: calls, puts and spreads.
Call options are used when people expect the price to go up, while puts are used when people expect the opposite. The spread is a combination of buying one option and selling another simultaneously. You can use this strategy when you anticipate that two stocks will move in the same direction, but you are unsure which one will do it first.
Make sure to use a reputable broker
Many brokers offer to trade in Australia. The best thing to do is to follow the steps below when you start looking for one:
- Read reviews from other traders and try to find a legit company
- Consider their pricing structures, commissions, spread etc.
- Find out if they offer to trade with options since not all brokers support that account.
Open an options trading account
To trade in Australia, you have to open a futures account. In this case, it’s probably going to be called an options account. Generally, there are two types of accounts for traders who use options: cash secured and non-cash secured.
If you open a cash-secured account, you will be required to keep a certain percentage of the total value of the options contracts you will trade, meaning that you need to put up margin money. A non-cash secured trading account allows you to trade with only the funds in your account (provided by the brokerage firm).
Decide which type of options you want to use
When trading with stock market options, three different types are available on each security: call, put, and spread. A call is an agreement between two parties where one side bets that they can buy something at a set price (strike price), within a specific time frame (until expiry date) for less than it costs now (if buying), or for more than its current price (if selling).
The other side is betting that the price will not go up or down by a certain amount. A put option is just the opposite: it gives the owner the right but not the obligation to sell at a set price within a specific time frame. A spread is a combination of buying one option and selling another simultaneously. This strategy can be used when two stocks are going in the same direction, but you don’t know which one will do it first. Step 4: Study price movements
Read educational materials
If you want to start trading in Australia successfully, you must read all relevant material regarding Australian financial markets and how they change over time. This kind of information will help you make better investment decisions.
Once you have opened a futures account, studied price movements and read educational materials, it’s time to start your journey as a trader in Australia. As mentioned above, there are only three basic types of options available on each security: call, put and spread. Your main goal is to find the best option for you based on which type suits your needs.