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Option Trading Examples

Bought Call Option

Buy 1 ANZ January $25.00 Call option @ 28 cents

This option gives you the right to buy 1000 ANZ shares for $25.00 each, on or before the expiry date in January. You are locking in a buy price of $25.00 for the ANZ share and if the ANZ share price is moving up above $25.00 before or at expiry of the option, you still have the right to buy the shares for $25.00 each.

If ANZ rises to above $25.00, you have you have the right to buy 1000 ANZ shares at $25.00. You could choose to exercise your option and buy the shares, paying the full face value of $25.00 per share plus transaction costs that might be applicable. The initial option premium should be added onto the $25.00 exercise price to calculate the break-even on the trade.

If you decide that you do not want to buy the shares you could sell the option and profit from the increase in premium.

The worst case scenario would be if the ANZ share price fell below $25.00 over the time of the option which would cause your option to lose value. If the ANZ share price is below $25.00 at expiry of the option, the option would expire worthless.

 

Trade Summary

(all amounts are exclusive brokerage)

  • Exposure 1000 shares
  • Initial Investment = $280
  • Max Loss = $280 
  • Breakeven = $25.28
  • Max Profit = Unlimited

 

Bought Put Option

Buy 1 ANZ January $22.00 Put option @ 25 cents

This option gives you the right to sell1000 ANZ shares for $22.00 each, on or before the expiry date in January. You are locking in a sell price of $22.00 for the ANZ share and if the ANZ share price is moving down below $22.00 before or at expiry of the option, you still have the right to sell the shares for $22.00 each.

If ANZ falls below $22.00, you have you have the right to sell 1000 ANZ shares at $22.00. You could choose to exercise your option and sell the shares, receiving the full face value of $22.00 per share plus transaction costs that might be applicable. The initial option premium should be added onto the $22.00 exercise price to calculate the break-even on the trade.

If you decide that you do not want to sell the shares you could sell the option and profit from the increase in premium.

The worst case scenario would be if the ANZ share price rised above $22.00 over the time of the option which would cause your option to lose value. If the ANZ share price is above $22.00 at expiry of the option, the option would expire worthless.

 

 Trade Summary

(all amounts are exclusive brokerage)

  • Exposure 1000 shares
  • Initial Investment = $250
  • Max Loss = $250
  • Breakeven = $21.75
  • Max Profit = $21,750 (if ANZ falls to zero)