How to protect your portfolio with options

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But how do you go about buying or shorting a large etf options asx of stocks in an efficient manner? Do you need to buy shares in every company or is there an easier way? Exchange-Traded Funds can be used to replicate or mirror an index. How is this achieved? Shares are directly etf options asx from an exchange. Care needs to be taken so that the basket of purchased shares have the same weighting as the index. After this is achieved creation units are formed.

These are typically bought up by large banks and institutions and further divided up into an equivalent amount of exchange-traded funds. It is important to note that these are created and based on a large basket etf options asx underlying shares. These etf options asx funds can now etf options asx bought and sold with each ETF unit representing a small portion of the underlying index.

The ETF cannot, however, be redeemed for physical shares despite being backed by them. Contracts For Difference allow a speculator to bet on future price fluctuations for high profit. Instead of having to buy the underlying asset, margin is used to ensure there is enough capital to cover any potential losses.

This means that you can bet a small amount of money and, if correct, make a large amount of gain. This goes for losses as well. The CFD index value is at The trader also needs to pay etf options asx interest, open interest, and variation margin going forward.

Of course, you would need to add in all other fees to determine net etf options asx. This allows the trader to play the price without the high capital cost of owning funds or shares. In the above example the trader tripled his investment with a moderate price move in the index. Buying index options is a quick way to have broad market exposure with a small amount of capital.

Although you have decent leverage, you cannot lose more than you initially put forward with options — which is not etf options asx of CFDs or futures. Keep in mind that these are Eurpoean style options which means they can only be exercised on expiry date.

An example of this type of transaction etf options asx be if the ASX was trading at 4, You want an options contract that will expire in a couple weeks. To break-even on expiry date, the index will need to be at 4, or higher. Any amount above this is profit, and even more so if you sell the option contract early. Etf options asx contracts have quarterly expiry dates. With futures you are speculating on the future value of an index on a specified date.

Of course, your gains and losses are leveraged in this instance. In addition to trading options on the Index, you can trade options on the futures contract. The big difference between these and the index options is that they etf options asx be exercised at any time not just on expiry date and as such they are termed American options.

This method attempts to match margin requirements to the maximum amount of one-day risk in options trading. Dividend payments are a big part of Australian share trading. How are they paid out through the various insturments? If you are interested in trading the ASX index, remember that you will need to do so with funds, futures, CFDs, or options since an index is a large basket of stocks designed to track broad performance as a benchmark — buying the index is simply not possible as it is a concept and not a tangible product.

StockWatch Home - www. Home Tools Articles Competitions Updates. Etf options asx Up Sign In. Trading the ASX Index: Friday, 09 February

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