# Shorting individual stocks



## Zaxon (14 May 2019)

I'd like to summarize the ways of making money on individual shares during price declines.  In the perfect world, it would be like a stock: can hold indefinitely; costs you nothing to hold it; can buy small and medium caps. I'm presuming no such thing exists for shorting, but as close to my wish list as possible.

Options I know of are:

Directly shorting the stock
Shorting CFDs of the stock
Shorting Futures of the stock
Buying Put Options
If there are other viable options, please list them.

I'd like for you guys who preferably have a good knowledge of these options, to rank them on the following criteria.

Scenario: You have $10k to short a stock. You want the option to hold that short for a year.  You can easily buy in or sell at any time, so good liquidity. Ideally, you have the option of shorting a medium (or small cap), but I understand I mighn't get that wish. You're not wanting to leverage this any more than you have to.  This isn't a hedge against an existing stock.

What I'd like to know is:

Which of the methods above allows this or comes closest?
Which methods are the lowest cost? What would the approximate cost be for each method?
Which methods are the safest: low counterparty risk, broker not artificially manipulating the market (eg: CFDs)
Which methods are safer by limiting the amount of money you could lose if the stock goes up in price?  (For instance, buying puts you only risk your initial fee.)
Relative ease of use for someone new to the instrument. As much as possible, your existing knowledge of how to invest in shares should be relevant to this security
Liquidity. How easy is to get in and out of these positions? 
What "universe of shares" does each method give me?  Am I limited to just the 86 stocks that broker has chosen? 
Can I short small caps with this method?
I'll contribute what I know:

Directly shorting the stock requires you to pay any owed dividend, so mightn't be a good idea for a long term hold
Puts and Futures have expiry dates.
Puts are relatively safe, since the most you can lose is the down payment.
Options market doesn't have good liquidity in Australia
I've heard all good derivative traders eventually move to futures. I don't know if this is true.
CFDs seem to have a lot of on going borrowing fees.
With stock shorting, you're limited to the actual shares the broker has access to
If people with broad experience across these options can identify the best method that satisfies my objective, and preferably flesh out the details.


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## aus_trader (14 May 2019)

One more to your list Zax, is warrants. It's bit like an options put but I find it a little easier to find the warrant for the liquid large caps on the ASX that can make you money betting against the stock i.e. if the price of the stock falls. See below for some of the BHP call & put warrants:




You can find the warrants on the ASX and then trade the put you like using your stock broker, ASX link below:
https://www.asx.com.au/asx/markets/warrantPrices.do?by=underlyingAsxCode&underlyingCode=BHP

No need for fancy-pants CFD's etc which could play with market prices etc.


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## Zaxon (14 May 2019)

aus_trader said:


> One more to your list Zax, is warrants. It's bit like an options put but I find it a little easier to find the warrant for the liquid large caps on the ASX that can make you money betting against the stock i.e. if the price of the stock falls.



Very interesting.  So for a put warrant, you'd buy it with the exercise price of the current underlying share today, and if the market goes down, you buy the actual share and then execute the put (sell) of the share?

So you think warrants are more liquid than the equivalent option for ASX shares?  And what's the relative price of buying options vs warrants?  I read that to exercise the warrant, you need to contact the issuer directly, so not your broker.  Is that correct?  Is that difficult?


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## Zaxon (14 May 2019)

*One point to add to my original post, I'll be using this security type for ASX shares, so it must work well here at home and have plenty of liquidity.  If it also can be used in other markets, that's an added bonus.  *


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## aus_trader (14 May 2019)

Zaxon said:


> Very interesting.  So for a put warrant, you'd buy it with the exercise price of the current underlying share today, and if the market goes down, you buy the actual share and then execute the put (sell) of the share?
> 
> So you think warrants are more liquid than the equivalent option for ASX shares?  And what's the relative price of buying options vs warrants?  I read that to exercise the warrant, you need to contact the issuer directly, so not your broker.  Is that correct?  Is that difficult?



Actually warrants are much easier and cheaper (in terms of brokerage costs).

With warrants you just buy the appropriate put with your broker just like buying a share. The behavior is like an option i.e. the puts closer to the current market price of the stock will vary wildly and can become worthless if it goes against you i.e. the stock rises sharply. On the other hand a put at a much higher price will increase in value as the underlying stock drops and you can still sell the put (as it will have some value) if the stock goes up to a set Stop Loss you have in mind.

I also considered Options before deciding on warrants for any shorting trades. Option brokerage costs are *ridiculous* in Australia so I will wait till some day when they come down to prices similar to stock broking costs.


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## aus_trader (14 May 2019)

Zaxon said:


> *One point to add to my original post, I'll be using this security type for ASX shares, so it must work well here at home and have plenty of liquidity.  If it also can be used in other markets, that's an added bonus.  *



Warrants work here on ASX, I can confirm as I have used warrants to bet against stocks. Only available for the large cap liquid stocks though. No warrants listed for small cap speculative plays.


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## Zaxon (14 May 2019)

aus_trader said:


> Actually warrants are much easier and cheaper (in terms of brokerage costs).
> 
> I also considered Options before deciding on warrants for any shorting trades. Option brokerage costs are *ridiculous* in Australia so I will wait till some day when they come down to prices similar to stock broking costs.




Very interesting.  In my experience with options, you phone your broker.  How do you execute a warrant?

I've checked my broker's prices.  $9-11 to buy warrants (same as shares).  $33 to buy options.  Not sure how much the relative exercising prices are.



aus_trader said:


> Warrants work here on ASX, I can confirm as I have used warrants to bet against stocks. Only available for the large cap liquid stocks though. No warrants listed for small cap speculative plays.



I fear that will be the case with all the instruments.  If so, I shall learn to live with it


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## aus_trader (14 May 2019)

Zaxon said:


> Very interesting.  In my experience with options, you phone your broker.  How do you execute a warrant?
> 
> I've checked my broker's prices.  $9-11 to buy warrants (same as shares).  $33 to buy options.  Not sure how much the relative exercising prices are.
> 
> ...



That's what I was talking about. 3 to 4 times more for options brokerage.

To execute a warrant you just buy the warrant, say a put warrant if you believe the underlying stock (say BHP) is going to go lower. Then the put will increase in value if the if PHP trades lower or the put will decrease in value until the exercise price if BHP rallies. If BHP rallies above the put's exercise price then your put will be worthless.

I rarely wait for the warrant till expiry date, I'll sell it to lock in profits or to limit losses if it goes against me.


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## Zaxon (14 May 2019)

While I'm waiting on experts in these relative areas to contribute, I'll start adding some facts so we can move part of the way there.

Can lose more than original money

CFDs
shorting stock
put futures
Can't lose more than original money

put options
put warrants


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## Zaxon (14 May 2019)

I've done some reading on futures, including on ASF.  It seems that futures are primarily used for trading indices, not individual stocks.  And it's suggested that you pick one index and stick with it to get to know it.

If this is the case, then futures don't appear to meet my requirement of shorting individual stocks.


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## aus_trader (15 May 2019)

Zaxon said:


> I've done some reading on futures, including on ASF.  It seems that futures are primarily used for trading indices, not individual stocks.  And it's suggested that you pick one index and stick with it to get to know it.
> 
> If this is the case, then futures don't appear to meet my requirement of shorting individual stocks.



I believe so, futures, e-mini's etc are used for indexes. People use them for hedging a portfolio of long stocks during market downturns and bear markets but as far as I know futures can't be used for shorting individual stocks.

Can futures be used for sectors? Say for Material sector or Financial sector? I wander if there are other members who are expert futures traders who'll know the answer.


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## Zaxon (15 May 2019)

aus_trader said:


> Can futures be used for sectors? Say for Material sector or Financial sector? I wander if there are other members who are expert futures traders who'll know the answer.



A limited number of sectors only, it appears.


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## cutz (15 May 2019)

My preferred method would be exchange traded options !

Work out how many short deltas you wanna be.

Executed as a combination order, short the call and buy the put at the same strike, best done with at the money strikes.

ASX options on our top stocks have fairly good liquidity.

Happy shorting !!


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## Zaxon (15 May 2019)

cutz said:


> My preferred method would be exchange traded options !
> Executed as a combination order, short the call and buy the put at the same strike, best done with at the money strikes.



So current price is $10.  You buy $10 puts and sell $10 calls.

If price goes to $5.  You can buy the shares at $5 and then instantly sell them at $10.  Calls expire worthless but you've received a premium for selling them.  Good deal.
If price goes to $20.  Your puts expire worthless.  Someone demands shares from you at $10. So hopefully you own those shares.  Bad deal.



cutz said:


> ASX options on our top stocks have fairly good liquidity.



That's good to know.


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## cutz (15 May 2019)

Zaxon said:


> So current price is $10.  You buy $10 puts and sell $10 calls.
> 
> If price goes to $5.  You can buy the shares at $5 and then instantly sell them at $10.  Calls expire worthless but you've received a premium for selling them.  Good deal.
> If price goes to $20.  Your puts expire worthless.  Someone demands shares from you at $10. So hopefully you own those shares.  Bad deal.
> ...




No !

You would reverse the position by selling the put and buying the call executed as a combination order.

The first and second trades cancel each other out so you will now be flat plus trading profits, ( losses if stock goes up).

The position will be delta one so it will move in step with the underlying.


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## Zaxon (15 May 2019)

cutz said:


> No !
> 
> You would reverse the position by selling the put and buying the call executed as a combination order.
> 
> The first and second trades cancel each other out so you will now be flat plus trading profits, ( losses if stock goes up).



OK.  So you're not carrying the shares at all.  If the market goes up to $20, you write $20 puts and buy $20 calls?  Or at the original $10 price?

And if the market goes down, do you ever wait to exercise the puts, or do you sell the put before the exercise date?


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## Zaxon (15 May 2019)

I've phoned my broker. The info he's given me is:
Exercising Options: phone the broker.  Cost is normal brokerage + 5.5c per contract ASX fee
Exercising Warrants: phone the market maker, so Citibank, UBF, Westpac.  Unknown exercising fee.

So if you're ever going to hold the derivative to the exercising date, options are much simpler.

Also, options are standardized by the exchange, so you know the format already.  Apparently, warrants can vary in conditions according to the company's needs, so they're not standardized. I don't know if you're only buying put warrants (so not installment etc), how much variation exists between say BHP and CSL warrants, or if they're essentially standardized in practice.


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## cutz (15 May 2019)

Zaxon said:


> And if the market goes down, do you ever wait to exercise the puts, or do you sell the put before the exercise date?




The whole point of the exercise is you're creating a synthetic position using options, the synthetic short will mimic the stock in terms of profit/loss profile, buying the stock to exercise the put introduces another set of complications, no need to do so, just close out the position with a synthetic long equivalent.

Easy Peasy !

BTW just read your last post, not sure about the point of warrants, perhaps someone can enlighten me ! If it's not exchange traded I wouldn't bother...


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## Zaxon (15 May 2019)

cutz said:


> The whole point of the exercise is you're creating a synthetic position using options, the synthetic short will mimic the stock in terms of profit/loss profile, buying the stock to exercise the put introduces another set of complications, no need to do so, just close out the position with a synthetic long equivalent.



OK.  Wouldn't you be better off just buying the put initially?  If the market goes down, you can sell it again to profit.  If the market goes up, it expires worthless.  With the synthetic short, if the market goes up, you've made a loss relative to that price increase.


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## rnr (15 May 2019)

Hi Zaxon,

The link below will probably answer your questions in relation to Warrants listed on the ASX. 

Warrants FAQs - ASX 

Cheers,
Rob


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## cutz (15 May 2019)

Zaxon said:


> OK.  Wouldn't you be better off just buying the put initially?  If the market goes down, you can sell it again to profit.  If the market goes up, it expires worthless.  With the synthetic short, if the market goes up, you've made a loss relative to that price increase.




Yeah a buy put looks good on paper.

Initial discussion was shorting the stock hence my idea of a synthetic short using options, pure delta play.. A buy to open put will not give you the delta you are chasing unless you're WTFITM, or at the money but bigger size where time decay will eat away at your position.


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## aus_trader (15 May 2019)

Zaxon said:


> A limited number of sectors only, it appears.
> 
> View attachment 94634



Interesting, I didn't know even a limited number of sectors were available. Thanks Zaxon, where did you come across this type of information ? I don't actually trade futures, except I do have some indices listed with a Forex broker.


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## Zaxon (15 May 2019)

aus_trader said:


> Thanks Zaxon, where did you come across this type of information ? I don't actually trade futures, except I do have some indices listed with a Forex broker.



https://www.asx.com.au/prices/asx-futures.htm

There's also futures for interest rates: bond yields, bank bills, etc.  Commodities such as Wheat, barely, electricity, gas, etc.


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## aus_trader (15 May 2019)

Zaxon said:


> https://www.asx.com.au/prices/asx-futures.htm
> 
> There's also futures for interest rates: bond yields, bank bills, etc.  Commodities such as Wheat, barely, electricity, gas, etc.



OK thanks, Just have to find which brokers offer these instruments to retail investors/traders like us...


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## aus_trader (15 May 2019)

rnr said:


> Hi Zaxon,
> 
> The link below will probably answer your questions in relation to Warrants listed on the ASX.
> 
> ...



Thanks rnr, yes ASX warrants are not some broker manufactured instrument like CFD's offered by market makers. The warrant prices can be checked on the ASX website.


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## Zaxon (15 May 2019)

So we cover all our bases, with CFDs, in addition to your counterparty typically being your broker and all the games that entails, there are holding fees for holding CFDs overnight.  I'd imagine if you wanted to hold CFDs for a year, it would be crazy exercise.



Plus, you're required to hold a decent cash balance at all times and add more money whenever they demand it.




When we compare that to options and warrants, nobody is going to demand more money.  You only pay if you choose to exercise/buy/sell, which is under your control.

However, the value of options & warrants do decay over time, so they're not perfect instruments either.


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## aus_trader (15 May 2019)

Zaxon said:


> So we cover all our bases, with CFDs, in addition to your counterparty typically being your broker and all the games that entails, there are holding fees for holding CFDs overnight.  I'd imagine if you wanted to hold CFDs for a year, it would be crazy exercise.
> 
> View attachment 94639
> 
> ...



Yes, you've summarised the use of these instruments well.

Neither of them should be used for long term investing type of use. Especially Options and warrants decay in time and lose value at an increased rate as it approaches expiry, so keep that in mind if anyone is planning to hold positions for a long time e.g. months and years. It's not possible to hold them for years actually as they will expire within a set number of months. For short term trading the decay should be negligible especially if your options/warrants are not close to the expiry date.


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## cutz (15 May 2019)

aus_trader said:


> Yes, you've summarised the use of these instruments well.
> 
> Neither of them should be used for long term investing type of use. Especially Options and warrants decay in time and lose value at an increased rate as it approaches expiry, so keep that in mind if anyone is planning to hold positions for a long time e.g. months and years. It's not possible to hold them for years actually as they will expire within a set number of months. For short term trading the decay should be negligible especially if your options/warrants are not close to the expiry date.




Correct options ( I can't really discuss warrants ) not really suitable for long term investing due to other factors but on the contrary long term positions are available with minimal time decay, an example is a 17th December, 2020 expiry BHP call 22.04 strike, no time decay on this position, long term expiry, approx. valuation of 15.24, I tested the bid/ask on a deep in the money today, not bad....


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## Zaxon (15 May 2019)

cutz said:


> Correct options not really suitable for long term investing due to other factors but on the contrary long term positions are available with minimal time decay



What are these other factors?


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## cutz (15 May 2019)

What I'm getting at is you can't really generalize an option as having one particular feature, a position has multiple facets and considerations like time decay, delta, sensitivity to a change in delta, volatility,sensitivity to a change in volatility, interest rate considerations, divi considerations.... A starting point is deciding what your outlook is then structuring a position to suit, for example if you're convinced that a particular stock is going to shoot thru the roof buy OTM calls, negative theta will be large but positive gamma will be on your side if you're correct, you will also be long vega but prob not to your advantage due to the negative skew on the call side, a tweak could be selling higher strike calls to help fund this position and flatten out negative theta but this will cap profits....selling twice the higher strike calls will fund your position and take you to max profits around the outer strike but of course you'll be screwed if a takeover is announced...


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## aus_trader (16 May 2019)

cutz said:


> What I'm getting at is you can't really generalize an option as having one particular feature, a position has multiple facets and considerations like time decay, delta, sensitivity to a change in delta, volatility,sensitivity to a change in volatility, interest rate considerations, divi considerations.... A starting point is deciding what your outlook is then structuring a position to suit, for example if you're convinced that a particular stock is going to shoot thru the roof buy OTM calls, negative theta will be large but positive gamma will be on your side if you're correct, you will also be long vega but prob not to your advantage due to the negative skew on the call side, a tweak could be selling higher strike calls to help fund this position and flatten out negative theta but this will cap profits....selling twice the higher strike calls will fund your position and take you to max profits around the outer strike but of course you'll be screwed if a takeover is announced...




Good explanation cutz. Basically anyone new to options should read up on these factors that affect options pricing and you've pretty much covered all of them via Greek alphabet


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## Kavabanga (16 May 2019)

Maybe Uber's IPO wasnt the best, and it lost almost 12% in two trading days, seems that the stock is trying to recover. Actually today it closed the gap...Is not it a perfect place to short until 28$ for example, and there buy and hold... we all know that 45$ was overpriced, so does Uber know I guess (closing price was 41.22$ last hourly candle is long and red, is not it a sign?)... Thoughts?


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## Zaxon (16 May 2019)

Kavabanga said:


> Maybe Uber's IPO wasnt the best, and it lost almost 12% in two trading days
> Thoughts?



My thoughts are you're taking this thread off topic.  This thread is about shorting ASX stocks in general.  Feel free to post your message in the international section, here: https://www.aussiestockforums.com/threads/uber-ipo.34607/


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## cutz (16 May 2019)

My favourite method of shorting,  (will not state the underlying but basically a top 10 asx stock which I'm always short due to other factors) is setting up an iron fly / centre strikes below the underlying (short straddles long strangles with double the  size on the long put ) , over the course of time chopping in and out of the short put side.

Just have to mention, doesn't always go my way.....


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## cutz (21 May 2019)

Far out !!!

With the unexpected liberal victory I got caught on the wrong side of this position, will make good by buying a call fly (debit spread) over the top but it will cost me !!

Anyone else caught up holding bank shorts ( The Widowmaker Trade ) this week, how are you dealing with it ??


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## aus_trader (22 May 2019)

cutz said:


> Far out !!!
> 
> With the unexpected liberal victory I got caught on the wrong side of this position, will make good by buying a call fly (debit spread) over the top but it will cost me !!
> 
> Anyone else caught up holding bank shorts ( The Widowmaker Trade ) this week, how are you dealing with it ??



cutz I feel your frustration mate, I was thinking about pulling a warrant short on one of the big four as well, but there was just too much volatility on the big mother of mortgage holders. You know 'which bank', right?

It's not easy to find the right stock (and time it) that is going to go into freefall. I am more cautious with the big banks because the government is very protective of them (the four pillars etc). I remember a lot of traders got caught trying to short the Aussie banks during GFC (2007/2008) when the government put a ban on it. So people who had short positions had to liquidate them (buy back immediately) whether the position was in profit or loss !


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## Zaxon (22 May 2019)

aus_trader said:


> I remember a lot of traders got caught trying to short the Aussie banks during GFC (2007/2008) when the government put a ban on it. So people who had short positions had to liquidate them (buy back immediately)



Did that ban only apply to actual stock shorts?  Not puts?


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## aus_trader (22 May 2019)

It's not exactly clear what would have happened to existing puts. But according to the article below any new positions were banned (referred to as naked selling). Anyway it's good to read and learn this type of measures that are taken by the governments of UK/Australia because let's face it it's hard to figure out what to do in a market panic like 2007/2008. I'll be honest I wasn't prepared and I didn't liquidate my portfolio (at that time) once the panic selling was underway and market was in free-fall. I think the learning/experience from that would be to liquidate my stocks once bear market kicks in.

Anyway, I'll stop talking, here's an article from 2008, governments doing their thing to stop the collapse of the financial markets during the savage bear market:

*Australia: ASIC Bans Short Selling*
Last Updated: 17 October 2008
Article by Richard Batten
*Minter Ellison*

The Australian Securities and Investment Commission (ASIC) joined its US and European counterparts in announcing new measures in relation to short selling in an effort to restore investor confidence and maintain the fair and orderly operation of the market.

The new measures were announced on 19 September 2008 in consultation and co-operation with the Australian Securities Exchange (ASX), and further clarified by ASIC on 21 September 2008. They apply from the opening of the market today, Monday 22 September 2008.

The measures, which have been described by ASIC Chairman Mr Tony D'Aloisio as 'circuit-breakers', include:


*a ban on all naked short selling transactions*
From the opening of trading today, ASX will remove all securities from its Approved Short Sale Products List – the list of stocks approved for naked short selling. This means that the exemption afforded by s1020B(4)(e) of the _Corporations Act 2001_ (Cth) no longer applies.

*a ban on all covered short selling transactions (subject to a limited authorised market-maker exception)*
Covered short sales of securities, which were previously authorised under s1020B(4)(c) or (d) of the Corporations Act, will not be permitted, except for those transactions entered into by ASX Approved Market Makers or Warrant Market Makers.

*reporting and disclosure requirements for permitted covered short sales*
A market participant must, at no later than 9:00am on each trading day, inform the market operator of their net covered short positions as at 7:00pm on the previous trading day.
In addition, a market participant must before selling a s1020B product on behalf of another person, ask that person whether the sale would be a short sale to which the reporting and disclosure requirements apply. The market participant must record the answer to this question in written or electronic form before selling the products.

These measures have been introduced to ensure that the restrictions imposed by other international regulators do not cause unwarranted activity on the Australian market.

ASIC will reassess the position for covered short sales for _non-financial stocks_ in 30 days. In the case of _financial stocks_, the review period will reflect the time limits imposed by other regulators, such as the UK Financial Services Authority (16 January 2009) and US Securities and Exchange Commission (1 October 2008 unless extended). ASIC has also indicated that the proposals will be in place until the Government's proposed short selling legislation.

While the Australian measures are similar to those imposed by other regulators, the following features are distinct:


the prohibitions are not limited to _financial_ stocks which was the approach taken by the UK Financial Services Authority (FSA)

the reference to 'securities' and the narrow definition of 'securities lending arrangements' in ASIC Class Order 08/751 and 08/752 may mean that listed funds and derivatives or other hybrid instruments that only involve synthetic obligations may not be subject to these new measures and

the implications for counterparties of ASX Approved Market Makers is unclear.
ASIC has indicated that it will work with industry on transitional issues affecting bona fide market transactions.

This morning, ASIC also advised market participants that it would provide a no action letter for hedging of existing positions of market makers arising from their client business. The terms of that letter are expected to be settled today.

In conjunction with its earlier class order simply requiring the reporting covered short sales, ASIC also issued _Regulatory Guide 196 – Short selling: Overview of s1020B_ which explains the regulation of short selling in Australia under s1020B of the _Corporations Act 2001_ (Cth).

_The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances._


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## cutz (22 May 2019)

All good,

In essence delta 1 shorting over the GFC was still on by the use of put/call synthetic positions, easier than shorting the actual stock pre/post 2008.


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## aus_trader (24 May 2019)

Not wishing to start more threads since there are plenty already on ASF, but want to discuss Options in a bit more detail on this thread, hope it's OK with you Zaxon.

As I mentioned before it's better to prepare when things are stable rather than to work out strategies when the market is plummeting like during GFC.

So I like to explore Options in more detail for shorting strategies since they are supposed to be quite versatile compared to say warrants. Options can do complex strategies like: spreads, straddles and even Iron Condors. Don't ask me the latter ones I am still learning and don't actually employ any of them at the moment. So what brokers offer the best Options brokerage in Australia?
Just to get the ball rolling I will start the list:

Comsec: $34.95
Bell Direct: $30 or 0.3%, whichever is greater + ASX Clear transaction fee


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## HelloU (24 May 2019)

(top of head)

public inquiry done last year (or maybe 2017) regarding nakeds coming back ...... dunno what happened


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## Zaxon (24 May 2019)

HelloU said:


> public inquiry done last year (or maybe 2017) regarding nakeds coming back ...... dunno what happened



There's a public enquiry into you being naked? I shudder to think...


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## Zaxon (24 May 2019)

aus_trader said:


> Not wishing to start more threads since there are plenty already on ASF, but want to discuss Options in a bit more detail on this thread, hope it's OK with you Zaxon.



Go right ahead  . I see anything that's about profiting on the downside as being totally relevant to this thread.


aus_trader said:


> As I mentioned before it's better to prepare when things are stable rather than to work out strategies when the market is plummeting like during GFC.



Is there a risk of paying for insurance that most likely won't "pay out"?  For instance, in a raging bull market, would you avoid downside protection?  But in a neutral (or obviously down) market, you might set some up?


aus_trader said:


> So what brokers offer the best Options brokerage in Australia?



CMC Markets: $33 or 0.33% (so worse than Bell)
SelfWealth: appear not to allow them


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## HelloU (24 May 2019)

Get ready, if they make a return then you really do not want to be caught with your pants up.


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## HelloU (24 May 2019)

HelloU said:


> Get ready, if they make a return then you really do not want to be caught with your pants up.



which is a nicer comment than what i really wanted to say ........ if you are shuddering then i know you are thinking about it ....purrrrrrrr.


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## aus_trader (24 May 2019)

Zaxon said:


> CMC Markets: $33 or 0.33% (so worse than Bell)
> SelfWealth: appear not to allow them



Ok thanks for adding to the list, hope others who use/know options can contribute to the list.

I know SelfWealth (SWF) is fairly new and they claim to offer the lowest online brokerage for share trades at $9.50. It'll be interesting if they can offer a lowest brokerage on Options in the future.


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## aus_trader (24 May 2019)

While we are at it and honing down on Australia's lowest cost Options trading house, if there are ASF members who are doing regular Options trades it would be great if you can post them here and state the reasoning for others to learn from. Doesn't matter if the result is a win or a loss, no one should judge as we are all here to learn.


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## cutz (24 May 2019)

aus_trader said:


> So I like to explore Options in more detail for shorting strategies since they are supposed to be quite versatile compared to say warrants. Options can do complex strategies like: spreads, straddles and even Iron Condors. Don't ask me the latter ones I am still learning and don't actually employ any of them at the moment. So what brokers offer the best Options brokerage in Australia?
> Just to get the ball rolling I will start the list:
> 
> Comsec: $34.95
> Bell Direct: $30 or 0.3%, whichever is greater + ASX Clear transaction fee




For complex strategies you need to get set up with Interactive Brokers. The latter is simply short a strangle long a wider strangle or a Bear Call coupled with a Bull Put.


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## cutz (24 May 2019)

aus_trader said:


> While we are at it and honing down on Australia's lowest cost Options trading house, if there are ASF members who are doing regular Options trades it would be great if you can post them here and state the reasoning for others to learn from. Doesn't matter if the result is a win or a loss, no one should judge as we are all here to learn.




My last trade was morphing a WPL backspread back into it's original Bull Put, the other half of the position is a Bear Call so originally an Iron Fly and now restored. Just taking advantage of the nice drop off in crude.


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## Sharkman (24 May 2019)

aus_trader said:


> While we are at it and honing down on Australia's lowest cost Options trading house, if there are ASF members who are doing regular Options trades it would be great if you can post them here and state the reasoning for others to learn from. Doesn't matter if the result is a win or a loss, no one should judge as we are all here to learn.




BHP Jun 36.42-34.98 1 by 2 ratio put spread, done a few days ago when the underlying was at $37, for very small credit ($1.50/contract from memory)

strikes in BHP are a bit funny, presumably because of the special distribution earlier in the year

looking for a continuation of the Apr fall to around the $35 level, which could become resistance turned support (it got rejected there a few times last year before breaking thru early this year). 200 day EMA also hovering around that level. chance to make up to $144/contract, low breakeven at 33.54

note that for people trading thru IB (the only real choice for trading ASX options IMHO, the commissions charged by anybody else who offers them is a joke) and were forced to migrate to IB Aust recently, you *cannot *let short puts get assigned if you don't have the cash to fully cover it, you must close out (probably in the last hour on expiry day to extract the most decay as you can). otherwise IB will liquidate *any of your holdings* *at random* to bring your cash balance back above zero afterwards - that will not necessarily be whatever was put to you from the thing that just got assigned!


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## aus_trader (25 May 2019)

Thanks guys (cutz, Sharkman), looks like Interactive Brokers blows any of our local brokerage firms out of the water. Because they had different prices for US, Europe, Asia Pacific etc would any of you be able to say what you actually pay for an ASX stock options trade?

Since you guys are doing more complex strategies like spreads and Iron Flies what is the total cost of such a trade? i.e. let's say to buy a Call / sell a Put of a different strike price at the same time etc in a multi-legged trade on the same stock?


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## cutz (25 May 2019)

aus_trader said:


> Thanks guys (cutz, Sharkman), looks like Interactive Brokers blows any of our local brokerage firms out of the water. Because they had different prices for US, Europe, Asia Pacific etc would any of you be able to say what you actually pay for an ASX stock options trade?
> 
> Since you guys are doing more complex strategies like spreads and Iron Flies what is the total cost of such a trade? i.e. let's say to buy a Call / sell a Put of a different strike price at the same time etc in a multi-legged trade on the same stock?




Agree , excellent brokerage !

Commission only 30cents a contract on equity options.

So in your case two legs using an example size of 10 / 10X30centsX2 = $6 plus GST. 

Don't forget to include ASX data at 25dollars a month.

Also Sharkman is on the money, unless its part of your strategy,  ( long stock after assignment ) make sure you have the cash to cover, manage your positions prior expiry.

BTW sometimes things can go wrong, many years ago I was caught out with an extended ASX outage on expiry day, unable to get out of my front positions and subsequently assigned, Comsec were extremely great the next day, a senior dealer unwound my unwanted positions and got my costs reimbursed, I got off lightly because the market swung my way.


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## aus_trader (25 May 2019)

cutz said:


> Agree , excellent brokerage !
> 
> Commission only 30cents a contract on equity options.
> 
> ...



Yes, good point about closing the contracts before expiry, only looking to profit from the underlying stock movement rather than having the stock assigned to me.
I initially plan to use options in a down trending or bear market environment only so just wandering whether the ASX data feed has to be kept ON all the time i.e. $300 per year or can it be turned ON/OFF each month to save money when the market is trending up or flat ?


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## cutz (25 May 2019)

Yep, although its excellent value and has come down in price from a few years ago data can be switched on/off.

Delayed quotes are free, so is some US and several other exchanges if commission you generate is above a certain level !


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## Sharkman (25 May 2019)

yep 30c per contract with $2 minimum, so best bang for buck at 7+ contracts.

since IB charges by contract, not by proceeds, it pushes you towards options on dollar expensive stocks like the big banks, BHP, RIO, where you get more dollar exposure for each contract. it's not as good with dollar cheap stocks like TLS, despite its liquidity, you have to trade way too many contracts to get any decent exposure.

in my view that is something you should be doing anyway, because of tick size. for options over TLS, you could be looking at a 0.10/0.12 type spread. if you need to buy options, unless you get filled right on the mid (and you can't assume that will always happen - it won't), you will take a significant hit, as the next best you can buy at is 0.115. contrast that with a CBA or RIO where you might face a 1.00/1.20 spread, if you need to buy into that spread, very good chance you can snag it for 1.105, 1.11, or 1.115.

you don't strictly need to buy IB market data to trade options thru them. i don't. one of the advantages of having both a long term buy & hold portfolio as well as a short term options trading portfolio is that i can get live ASX options market data for free from the ripoff local broker that i have my CHESS sponsored long term portfolio with, even though i've never traded any options with them (brokerage is way too expensive).

closing out before expiry isn't a hard and fast rule. if you're ok with the resulting stock position, it's perfectly valid to just take the assignment, provided that you have the cash to cover it. i used to do that a lot when my account was still with IB LLC and i had access to margin - didn't need to fully cover with cash back then. haven't done it since the forced migration to IB Aust. there are some advantages to taking the assignment. you squeeze out every last bit of decay, you don't have to cross a potentially nasty spread to close out the option (MM can sometimes get rather stingy on expiry day, as they know people will be looking to close), and you can always just turn around and immediately sell covered calls over the stock you just got assigned.


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## cutz (25 May 2019)

Sharkman said:


> yep 30c per contract with $2 minimum, so best bang for buck at 7+ contracts.
> 
> since IB charges by contract, not by proceeds, it pushes you towards options on dollar expensive stocks like the big banks, BHP, RIO, where you get more dollar exposure for each contract. it's not as good with dollar cheap stocks like TLS, despite its liquidity, you have to trade way too many contracts to get any decent exposure.




Yep, that's my zone, higher face value contracts including CSL which I get good fills on spreads.

A big four broker is also good if you wanna get long gamma, for example buying a bucket load of OTM bank puts or OTM index calls, single legs below 10K value, cheap and not a problem !


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## aus_trader (25 May 2019)

Sharkman said:


> yep 30c per contract with $2 minimum, so best bang for buck at 7+ contracts.
> 
> since IB charges by contract, not by proceeds, it pushes you towards options on dollar expensive stocks like the big banks, BHP, RIO, where you get more dollar exposure for each contract. it's not as good with dollar cheap stocks like TLS, despite its liquidity, you have to trade way too many contracts to get any decent exposure.
> 
> ...



Thanks Sharkman, this is awesome information


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## aus_trader (25 May 2019)

cutz said:


> A big four broker is also good if you wanna get long gamma, for example buying a bucket load of OTM bank puts or OTM index calls, single legs below 10K value, cheap and not a problem !



Sorry cutz, I got a bit lost with the quoted information you wrote. Would you care to explain it a bit further please ?


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## Zaxon (25 May 2019)

aus_trader said:


> Sorry cutz, I got a bit lost with the quoted information you wrote. Would you care to explain it a bit further please ?



Cutz writes some excellent posts about options, but when I read, "Buy the whoosie short put with a split-whatsie, wrapped up in a straddled hows-your-father", I'm never quite sure what he means nor how to respond


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## aus_trader (25 May 2019)

Zaxon said:


> Cutz writes some excellent posts about options, but when I read, "Buy the whoosie short put with a split-whatsie, wrapped up in a straddled hows-your-father", I'm never quite sure what he means nor how to respond



Yes I get most of his acronym and options lingo filled comments. But sometimes it goes over my head as well...


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## cutz (26 May 2019)

aus_trader said:


> Sorry cutz, I got a bit lost with the quoted information you wrote. Would you care to explain it a bit further please ?




All good ! Out Of The Money single legs for example Jul XJO 5500 Puts, if buying heavy volume better off with Comsec, $34.95 up to 10K face value, I may have mentioned Gamma, its one of the Greeks, in this case you will be long, you will need to understand the Greeks, there are tools that help you understand, Hoadleys is one of them,

For more advanced strategies with higher face values per leg Interactive Brokers is the obvious choice, the only broker here for serious Option Traders.


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## aus_trader (3 June 2019)

Found another options broker while doing some stock research which offers $24.95 for ASX options trading. I haven't tried them but just another broker for the list of ASX options brokers: https://reachmarkets.com.au


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## Zaxon (3 June 2019)

aus_trader said:


> $24.95  https://reachmarkets.com.au



So that's cheaper again than Bell.

I did find two spammy sites that seem to be shills for reach: https://impliedvolatility.com.au/#/ and https://optionsgame.com.au/ .  They might just be affiliates, or it might imply something spammy about Reach, I'm not sure.  Also, there's pretty much no reviews about Reach Markets on the web, as if no one has heard of them before.  I'd be cautious until we get more info.


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## aus_trader (3 June 2019)

Zaxon said:


> So that's cheaper again than Bell.
> 
> I did find two spammy sites that seem to be shills for reach: https://impliedvolatility.com.au/#/ and https://optionsgame.com.au/ .  They might just be affiliates, or it might imply something spammy about Reach, I'm not sure.  Also, there's pretty much no reviews about Reach Markets on the web, as if no one has heard of them before.  I'd be cautious until we get more info.




Yes, me too I'd be very cautious since I have only just come across them by clicking on an Ad while doing some stock research as I was saying before. In fact until I see some pro's and con's from other traders on forums etc I would stick to the main ones like CommSec / Bell Direct / CMC markets for local brokers and IB for international brokers.


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## cutz (3 June 2019)

aus_trader said:


> Found another options broker while doing some stock research which offers $24.95 for ASX options trading. I haven't tried them but just another broker for the list of ASX options brokers: https://reachmarkets.com.au




That's not bad !

Wonder if its fixed regardless of value and volume ?


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## aus_trader (3 June 2019)

cutz said:


> That's not bad !
> 
> Wonder if its fixed regardless of value and volume ?



Not sure cutz, I only just came across them so they must be new and their site says $24.95 for 1 Leg of an Options trade, so may have to enquire from them the cost for multi-Legged Options strategy or higher Volume.


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