Options trade, ASX options, and put and call option

Posted by callput on April 19th, 2013

Understanding security trading can be difficult.  The terminology alone can be complex.  The basic buying and selling of shares is complicated by not only specific rules, but also by exceptions to those rules.  Understanding the basics of options trade will help you to make wiser decisions when it comes to your shares.

The ASX is the Australian Securities Exchange.  This is the organization that provides the ability to buy and sell shares or stocks, or option trade.  It monitors and sets the economic growth patterns by smartly trading with other large trading partners.  The largest trading partners Australia has are the United States, Japan, and China.

An ASX option is a contract between someone selling, or writing, shares and someone who is buying, or taking, shares.  It states that the specified number of shares is available to the taker for purchase, but the taker is not required to purchase them.  It sets a price and a date for this transaction to take place.  The standard number of shares for each option is 100.

The end price of the ASX option is not only the price per share multiplied by the amount of shares available in the option.  Also included in the end price are fees that the ASX charges, along with the fees that the brokers charge the taker as well as the writer. 

A broker is someone that works for the writers and the takers during option trade.  There is a broker that works between the writer and the ASX, and another broker that works between the ASX and the taker.  They write and mediate the contracts between the participating parties.

There are different kinds of options, referred to as put and call options.  A put option allows a taker or buyer to purchase a predetermined number of shares of a commodity by a predetermined date.  A call option allows a writer or seller to sell a predetermined number of shares of a commodity by a predetermined date.

Put and call options set prices ahead of time for a particular commodity.  If the shares value goes up within the predetermined time frame, the buyer is able to still buy it for the lower price established in the option.  However, they are not required to purchase it.  This is especially helpful if the price does not go up. 

In a nutshell, option trade puts a hold on pricing.  It gives the buyer the opportunity to attempt getting shares of commodities at prices that are lower than their market value.  If the option price does not come in under market value, then the seller will not purchase the option.  They will purchase their shares directly from the market.

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