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
The risks of trading US Options
Trading in Options is typically viewed as a risky investment, suitable for experienced
investors who have a high tolerance for risk. Before you apply for an Options account, you
are required to read the Risk Disclosure Statement on page 36 of this PDS.
Significant risks
Here are the significant risks of trading US Options with CommSec.
Limited life
Volatility
Leverage
Taking Options
Writing Options
Difficulty closing
positions
Adjustments
Options have a fixed expiry date, after which they are
worthless. Their value can fall rapidly as they approach expiry.
Because Options are highly leveraged, they are highly
sensitive to changes in the value of the underlying security.
While leverage can multiply your profits when you invest
successfully, it can also multiply your losses when your view
of the market proves incorrect.
When you take an Option, the maximum amount you can
lose is the premium you pay plus any transaction costs,
such as brokerage.
When you write a covered Call Option, you run the risk of
being required to sell your shares at less than the current
market price if the share price rises above the exercise
price of the Option. If the share price falls, you risk making
a loss on your investment in the underlying shares.
When the market moves against you, you may find it
difficult to close an open Option position if there is a
significant change in its price over a short period of time.
If the underlying share for an ETO makes a pro-rata change
to its ordinary share capital structure the exchange may
make adjustments to the specifications of the ETO to
preserve their total exercisable value. That means that the
result of the number of contracts multiplied by the contract
size and multiplied by the exercise price is kept as the same
total exercise dollar amount before and after the underlying
security’s ex-date. Changes can be made to contract size,
exercise price, expiry date, number of contracts, and even
the underlying securities. As such changes can immediately
affect important factors such as whether your ETO is
‘in’ or ‘out’ of the money, you will need to review all ETO
adjustments to ensure that the position still falls within your
investment strategy (See “Corporate Actions” on page 14 for
further information).