Premium and contract size on ASX options

[blackwolf]

Hi Everyone,

I've decided to take the plunge and start trading options and I'm a bit puzzled about the multipliers for index options.

From the ASX site:

XJOWN8
Description: 6375.0 CALL OPTION EXPIRING 19-APR-2018
Underlying asset: S&P/ASX200
Expiry: 19 Apr 2018
Exercise Price: 6,375.000
Exercise style: European
Open Interest: 3,235
Contract size: $10 / point
Commenced Trading: 20 Oct 2017​

and

For example, a quoted premium of 16 cents represents a total premium cost of $16.00 ($0.16 x 100) per contract. To calculate the full premium payable for an index option, you simply multiply the premium by the index multiplier. For example, a premium of 30 points, with an index multiplier of $10, represents a total premium cost of $300 per contract.​

and

In the case of index options, contract value is fixed at a certain number of dollars per index point (for example, $10 per index point). The size of the contract is equal to the index level x the dollar value per index point (for example, for an index at 4,500 points, 1 contract would be 4,500 x $10 = $45,000).​

I would have though this would mean that my broker would charge me $10 x the option price (say 1.02), being $10.02 + brokerage + ASX fees.

Instead they are quoting $1000 x the option price. I can only assume that the "each option represents 100 of the underlying asset" rule applies for index options too, but wouldn't that mean that the contract size would be to multiply the index value by $1000 too? That is, 1 option would represent a contract value of $4,500,000 rather than the $45,000 stated in the ASX material above.

Thanks in advance for any responses.

 

[dutchie]

Hi blackwolf
Sorry to rain on your "plunge" but...

Personally think Options in Oz is a waste of time and money - high brokerage, low liquidity, large spreads.

Better off in US - opposite to above except for currency exchange issues.

(Can do it through I.B.)

 

[Mr Bear]

What you have calculated is the premium, the quote you are getting relates to margining, the ASX uses the span margining method, I could explain but might not be as articulate as the asx, I suggest looking it up, if you have any questions after I’m happy to answer them..

Dutchie is right the spreads and liquidity are poor most insto trade OTC or on liquidity you don’t see quoted in the screen. I trade index options occasionally, the margin Is expensive compared to a SPI contract for example, doesn’t mean they are a write off. Depending on the market and volatility at the time the spread doesn’t always matter, especially if you plan on holding to expiry.

 

[cutz]

Hi Everyone,

I've decided to take the plunge and start trading options and I'm a bit puzzled about the multipliers for index options.

I suspect you are using comsec ?

To use XJOD89 as an example, the comsec website will represent last trade as $1.92, the correct price representation is 192 (points), this is how its shown on webiress and IB TWS. Simply multiply 192 (points) by $10 ( the multiplier) to obtain the price per contract ($1920). Obviously if you are using the comsec website pricing, you will have to multiply by 1000 to get your price per contract.

BTW, I find XJO index options pretty good, spreads are tight and liquidity is OK.

 

[volatility]

Hi blackwolf
Sorry to rain on your "plunge" but...

Personally think Options in Oz is a waste of time and money - high brokerage, low liquidity, large spreads.

Better off in US - opposite to above except for currency exchange issues.

(Can do it through I.B.)

Sorry, but this is completely incorrect. Australian options over the top stocks are as liquid as US. The big difference is that in US market makers are obligated to quote - whereas in Australia you have to do a quote request. Better yet, we have European options, which make trading sold spreads much safer.

Take this from a person who has been building tech for this market for over 5 years (and trading it for much longer). Today, we have Australia's leading risk management system, the ASX options game and an online trading platform called implied volatility. I'm hoping that one day we get to a point where people don't make statements like this based on experience punting a few options on CommSec.

Most of our traders get filled on combo trades right at the theoretical price + a few ticks maximum, so large spreads are meaningless unless you want to give market makers a free ride.

 

[cutz]

Most of our traders get filled on combo trades right at the theoretical price + a few ticks maximum, so large spreads are meaningless unless you want to give market makers a free ride.

Agree,

I normally get filled at midpoint.

 

[volatility]

Agree,

I normally get filled at midpoint.

Out of interest, do you trade through Implied Volatility?

 

[cutz]

Out of interest, do you trade through Implied Volatility?

Sorry I don't really understand your question, volatility trader ?

With regards to volatility, there aren't many opportunities to be short volatility at the moment, most of my positions are slightly directional, i.e. flys/iron flys which I roll out/close out when the underlying drifts to the body strikes. Also bear calls on a particular sector, bull puts on a couple of underlying's in recovery.

 

[volatility]

Sorry I don't really understand your question, volatility trader ?

With regards to volatility, there aren't many opportunities to be short volatility at the moment, most of my positions are slightly directional, i.e. flys/iron flys which I roll out/close out when the underlying drifts to the body strikes. Also bear calls on a particular sector, bull puts on a couple of underlying's in recovery.

Ah, sorry. I meant through our platform that's called implied volatility.

 

[cutz]

Ah, sorry. I meant through our platform that's called implied volatility.

Hey,

TWS is my platform of choice.

 

[cutz]

Ah, sorry. I meant through our platform that's called implied volatility.

Had a look, nice looking platform ! Pricing looks good too.

 

[volatility]

Hey,

TWS is my platform of choice.

Haha - I totally misread that.

We have this feature where we quote the Estimated Trading Range for each ticket (single leg or combo) and it uses the same rules as the ASX for ensuring market integrity across the market. We have most traders getting filled at the mid-point of that price and I thought you may have referred to that.

Had a look, nice looking platform ! Pricing looks good too.

Thanks very much! We're trying very hard to shake up this market