2 Before you begin The ASX Options Market has been operating since 1976. Since the market started, volumes have increased significantly. There are now over 120 different companies … … several indices to choose from. A list of companies and indices over which Exchange Traded Options (options) are traded can be found on the ASX website, www.asx.com.au/options (under Option Stocks in the “Trading Information” section). This booklet explains the concepts of options, how they work and what they can be used for. It should be …

What is an option? An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a security at a predetermined price on or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract. For illustrative purposes, the term shares is used throughout this booklet when referring to the underlying securities. When considering options over an index, the same concepts generally apply. From time to time options may be available over other types of securities. The standard number of shares covered by one option contract on ASX is 1,000. However, this may change due to adjustment events such as a new issue or a reorganisation of capital in the underlying share. All of the examples in this booklet assume 1,000 shares per contract and ignore brokerage and ASX fees. You will most definitely need to consider these when evaluating an option transaction. For options over an index, the contract value is based on a dollar value point. Details can be checked in the contract specifications. There are two types of options available: call options and put options. Call options Call options give the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date. Call option example AGL Energy Limited (AGK) shares have a last sale price of $14.00. An available 3 month option would be an AGK 3 month $14.00 call. A taker of this contract has the right, but not the obligation, to buy 1,000 AGK shares for $14.00 per share at any time until the expiry*. For this right, the taker pays a premium (or purchase price) to the writer of the option. In order to take up this right to buy the AGK shares at the specified price, the taker must exercise the option on or before expiry. On the other hand, the writer of this call option is obliged to deliver 1,000 AGK shares at $14.00 per share if the taker exercises the option. For accepting this obligation the writer receives and keeps the option premium whether the option is exercised or not.

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