Exchange- traded options
Benefits Protection You can use ETOs to hedge or protect your share portfolio against a drop in value. For example, buying put options over shares allows you exchange- traded options lock in a sale price during the life of the option, regardless of share price movements.
Income Shareholders can earn income by selling call options over shares they already hold. Time to decide If you buy a call option, the purchase price for the underlying share is locked in until the ETO expiry date.
Leverage The initial outlay for an options contract is less than you would need if you were to invest directly in the underlying shares. Diversification Because your initial outlay is lower when you trade options, you can diversify your portfolio and gain broader exposure to a range of shares, or even a market index.
Risks Limited life span ETOs have a limited life span. Market movements ETOs are affected by movements in the underlying share or index. If the market moves against you, your ETOs may fall in price or become worthless at or before their expiry date.
Leverage The high degree of leverage involved in many ETOs can work against you, multiplying losses if the market moves against you. Next steps Get started with nabtrade Every new nabtrade customer receives: A domestic trading account.
An exchange-traded option is a standardized derivative contract, traded on an exchange, that settles through a clearinghouseand is guaranteed.