Equity options are the most common type of equity derivative. They provide the right, but not the obligation, to buy (call) or sell (put) a quantity of stock (1 contract = 100 shares of stock), at a set price (strike price), within a certain period of time (prior to the expiration date).
Equity Options are Derivative Instruments that give investors the right, but not the obligation to buy (Call Option) or sell (Put Option) Shares at a fixed price at a future date. Equity Options are traded on South Africa’s largest and most liquid companies as well as being available on most FTSE/JSE indices. The product is easily accessed through Equity Derivatives members and can be either physically settled or cash settled.
Who is this for?
Equity Options are used by a number of market participants, including investors seeking exposure to Share price movements for a fraction of the cost of the actual Share, investors who are uncertain whether to buy or sell Shares and need time to decide, and hedgers seeking to reduce risk by protecting an existing Share portfolio against adverse price movements.
- Margined over the life of the Option, which helps protect market participants from defaulting counterparties;
- Provides hedging opportunities;
- Allows speculators gain exposure to movements in the Share price for a less than the cost of the actual Shares;
- Maximum loss is limited to the premium paid;
- Investors have time to decide if they want to exercise the Option;
- Investors can take advantage of unique opportunities with Option trading strategies;
- The risk in Options differs between buyers and sellers in that purchasing Options involves risk that is limited to the price paid for the Option (the premium) and is therefore known at the outset. Experienced investors or investors guided by an experienced advisor should participate in this market.
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