US ExchangE- TradEd OpTiOnS prOdUcT diSclOSUrE ... - CommSec

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U S E xc h a n g e -t r a d e d o p t i o n s
Discover a new way
to trade
Exchange Traded Options (or ETOs) are a versatile financial tool that you can use to:
• Protect your portfolio.
• Profit from market movements, even when the market is falling or flat.
• Earn extra income from your shares.
• Increase your returns through leverage.
• Diversify your portfolio.
Options derive their value from an underlying security, such as a share or an index. That
makes them a flexible alternative to direct investing, giving experienced investors access to
a range of strategies that might otherwise be unavailable. And, by trading Options in the US,
you can access the world’s largest and most dynamic derivatives market.
This Product Disclosure Statement (PDS) is designed to help you understand the US
Options market and how you can use CommSec to trade Options in the US. It provides you
with the information you need to help you decide whether this financial product will meet
your needs and how it compares with other products you might be considering.
What is an Option?
An equity Option is a contract between two parties that gives the buyer (taker) the right,
but not the obligation, to buy or sell a bundle of shares at a specified price, on or before
a predetermined date. The seller (writer) of the Option has an obligation to fulfil the
requirements of the contract, if called upon by the buyer to do so. In exchange for
the right to require fulfilment of the contract, the taker pays a premium to the writer.
A Call Option gives the taker the right to buy the underlying shares, while a Put Option
gives the taker the right to sell them.
Index options work in a similar way. The taker of an index Option has the right to receive a
cash payment if a sharemarket index reaches a specified level (expressed in points) on or
before a predetermined date.
Option writers are required to supply shares or cash as collateral. A naked position is one
that is not specifically hedged.