How To Trade Options In Australia: A Beginners Guide

Students want to know how they can buy and trade options in Australia.

 

Options are attractive to traders due to their versatility, flexibility, and profitability. They are a form of derivative trading that enables people to transact on securities in the Australian stock market.

 

The volatility of the market has made Options trading a popular alternate strategy to limit risk, protect existing share portfolios against a decline in value, and make some money in periods of low capital growth.

 

This guide is a valuable resource for learning the fundamentals of options trading - features and pros/cons of options trading, the best platforms to trade in options in Australia, and how experienced investors can use the strategy to earn additional income from stocks.

 

If you don't have an options trading account yet, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.

 

 

1. What Are Options?

 

Options, also called Exchange Traded Options, are derivative financial instruments with no intrinsic value. They are contracts that derive their value from their underlying stock.

 

Options are flexible tools that help traders use them to refine their existing trade strategies. It allows the investor to forecast the future price of the financial market. Rather than owning tangible, physical assets, you can transact (buy or sell) options before the expiration date to generate profits.

 

The Australian Securities and Investments Commission is the body that regulates options and binary options.

 

 

2. What Is Options Trading?

 

Options trading implies an exchange or buying and selling of options. The financial contract offers investors the right and not compulsion to trade in an underlying asset at a specified price if it reaches beyond that price within a specified period. The price you pay to purchase the option is called the ‘premium’.

 

 

3. What Can You Trade With Options?

 

The world of Options encompasses various types of trading, ranging from commodities, stocks, currencies, indices, bonds, and ETFs. All you need is to predict the asset price and wait for the outcome.

 

 

4. Why Should You Trade In Options?

 

Trading options are promising, especially when the market is flat and bearish. With it, you can limit your risk exposure and protect the value of your existing share portfolio in the falling market.

 

Although many consider it risky and more complex than standard stock trading, it can protect your stock investment value against losses and augment profits. The trader's potential loss from an Options trading strategy is limited to the premium paid.

 

Furthermore, Options can also help you generate income in times of low capital growth. It benefits traders regardless of whether the commodity, stock, or forex prices rise or fall.

 

 

5. How Does Options Trading Work?

 

Investors can trade in Options in the following ways:

 

  • Buy or Sell Call Options: The Buy Call Options gives the “Option Buyer” the right to purchase a fixed number of securities, for a definite price point, on or before a specified date. The Sell Call Options allows the “Option Seller” to deliver stock if required by the Option Buyer, at the decided quantity and price, and up until the expiry of the option.

 

  • Buy or Sell Put Options: The Buy Put Options gives the Options buyer the right to sell a set number of securities, for a specific price point, on or before a set date. The Sell Call Options oblige the Options Seller to purchase the stock if required by the Option Buyer at the decided price and quantity until the option expiry date.

 

  • Covered Calls: It is an upside call strategy covered by an existing long position in the underlying asset. It is sold in an amount that covers the existing position size. The traders receive the option premium as income but also limit the upside potential of the underlying position 

 

  • Protective Puts: The strategy is ideal for traders who own the underlying asset and need downside protection. It involves paying a premium to purchase a “downside put” in an amount to cover a current position in the underlying asset. Thus, you can’t lose more beyond a certain limit.

 

  • Long Straddles:  In this strategy, an investor purchases both a call option and a put option at the same expiration date and strike price on the same underlying asset. Purchasing a straddle allows investors to capitalize on future volatility without betting on the price movements, as either direction will profit. However, buying two options makes it relatively costlier than other Options Trading strategies.

 

 

6. Advantages Of Options Trading

 

  • The best benefit of trading in options is the upside potential, with losses limited only to the option's premium.

  • They are helpful as a source of risk hedging and leverage.

  • Short-term options trading can also help you earn some additional money on investing. A covered call can help you generate income immediately in a sideways market.

  • Is it profitable to trade options? Yes. You can make higher returns than directly investing in stocks with a smaller initial outlay.

  • Options trading strategy allows you to benefit from fluctuations in a share price without needing to pay the share price.

  • Unlike paying the price of shares, Options trading enables investors to diversify their portfolio with a smaller initial outlay. 

  • The Call Options give you time to decide on purchasing shares. By paying a fraction of the shares in the form of a premium, you can lock in the buying price, and you can buy those shares any time before the expiry date of your option. 

  • Options trading enables you to implement an array of option trading strategies in several market conditions (falling, rising, or flat). You can choose the one that best suits your needs.

 

 

7. Are Options Trading Better Than Stocks?

 

 

Time Decay

 

The main drawback of Options trading is if the stock price doesn’t move as per your estimations within a specified period, you will lose your entire premium.

 

However, this is not the case with “direct investment in stocks” because the share price can come to your estimated price after some time (after the options expiry). 

 

 

Can Amplify Your Losses

 

The leverage that can get you higher profits in Options Trading can also result in higher losses if the stock price doesn’t go in your favour until your Options expire.

 

Though Options trading may be more affordable than regular stock trading, it is more time-bound. Only experienced investors who are 110% sure that the stock price will reach its price target at a set duration should invest in Options Trading.

 

Option writers (who sell Options) may face unlimited losses when the contract they sell moves against their speculations. This way, they would lose more than any premium received.

 

 

Prone To Market Risks

 

It is necessary for traders to know the nature of the stock market and that it is uncertain, and influenced by several socio-economic factors. A “time-bound” options trading may fail due to unforeseen circumstances, but if you are a long-term player in the stock market, you will eventually win the race.

 

 

Can’t Participate In Corporate Action

 

Both the Call option taker and the Call Option Writer are not eligible to receive dividends and participate in voting on the underlying shares until the shares are transferred.

 

 

Complexity

 

Options Trading is more complex to understand and execute than regular stock trading. It is for experienced investors and risk takers who understand in which direction the stock price will move in the near term.

 

However, if you are a beginner trader, risk-averse, willing to hold stocks for the long term, and want decent returns from the market, then stock trading is the ideal route for you. Though, options trading for beginners is not advised. Beginners can do it under the guidance of an experienced Options trader.

 

 

8. Components of Option Trading

 

The five components of an option contract:

 

 

  • Underlying Securities/Approved Indices: Options trading on the ASX options trading market is only available for specific securities and the S&P ASX 200 share price index. Refer to the ASX website to find the list of all the various options classes trading on ASX’s options market.

 

  • Contract Size: A single option contract represents 100 underlying shares on the ASX's options market.

 

  • Expiry-Day: All Options come with a limited life span and expire on the expiry day, as specified by ASX Clear. It is the day on which all unexercised options in a specific series expire and is the last trading day for that series. Generally, the expiry date is the third Thursday of the contract month.  

 

  • Exercise (or Strike) Prices: This price is a pre-determined buying or selling price for the underlying shares when the option is exercised. ASX Clear sets the exercise prices for all options listed on the ASX options market.  

 

  • Premium: This is the price of the options set based on the negotiation between the Call taker and the Call writer of the option. ASX Clear sets options premiums and quotes on a cents per share basis.

 

 

9. Steps To Trade Options in Australia

 

Here is a step-wise guide you need to follow to learn and start Options trading in Australia.

 

 

Step 1: Understand Options Trading Terminology

 

Before you start trading in Options, you must be familiar with specific Options trading terminology that includes:

 

  • Holders and writers

  • Premium

  • Strike price

  • Expiration date

  • In the money

  • Out of the money

  • At the money

  • Break-even point

 

 

Step 2: Choose An Options Trading Strategy

 

There are various options trading strategies available to get different results when trading options. Some of the popular ones include:

 

  • Buying a call option

  • Buying a put option

  • Hedging your investment

  • Short calls (selling a call)

  • Spreads

  • Straddles

  • Strangles

 

 

Step 3: Open An Options Trading Account

 

You need an Options Trading account to begin trading options. If you don't have an options trading account yet, we recommend the best broker for Australia and worldwide, eToro - You can create an eToro trading account HERE.

 

You can also compare different options trading brokers on a range of factors such as:

 

  • ASIC Regulated or not 

  • Fees

  • Credibility

  • Types of markets served

  • Platforms supported 

  • Speed

  • Convenience, Ease of Navigation, etc.

  • Availability of research, trading, and learning tools

  • Customer Service

 

 

Step 4: Choose A Market To Trade Options On

 

Many brokerage firms in Australia let you trade in options not only in Australian stocks but also on several other markets such as EUR, USD, GBP, CHF, etc. Identify which market you want to trade in and learn how those markets perform.

 

 

Step 5: Fund your account

 

Before you start trading options, you need to have adequate money in your brokerage account. If you plan to use leverage, you will need sufficient funds to cover potential losses.

 

 

Step 6: Research

 

Extensive research is needed to develop effective trading strategies to realize desired profits. For this, you need to determine the period during which the market is probable to move. Based on the type of trade you plan to make, you can opt for daily, weekly, monthly, or quarterly options to meet your goals.

 

 

Step 7: Place A Trade

 

Choose the assets in which you want to trade the options, and place a "call" or "put" options trade. The option type you trade will depend on whether you wish to speculate on the falling or rising market. Remember that buying an option is less risky compared to selling an option.

 

Having decided whether you want to place a sell or a buy trade, the next step is to select the premium (or margin and strike price with which you want to open the trade position).

 

 

Step 8: Regularly Monitor Your Position

 

After opening a position, track the market movement and the potential profit or loss. In the case of “In The Money”, you may close it before the expiry date to maximize your gains.

 

If you are not in profit territory yet, exit your trade to expiry, and lose only the price you paid to open the position.

 

 

10. What Are The Best Options Trading Platform In Australia?

 

Below is the list of the best options trading platforms in Australia:

 

 

eToro (Our Recommendation - Best Platform For New Traders)

 

Features:

 

  • Year of Establishment: 2007

  • Headquarters: Central Israel

  • Regulated by: Cyprus Securities and Exchange Commission, the Financial Conduct Authority, Australian Securities & Investments Commission, and the Seychelles Financial Services Authority

  • Minimum Deposits: $50

  • No Deposit Fees

  • Withdrawal fee: $5

  • Platforms: CopyTrader

  • Commission Charges: None

  • Inactivity fee charges: $10 per month

 

Pros:

 

  • Comparatively Low fees
  • Tons of learning, research, and trading tools

 

Cons:

 

Limited customer service

 

 

Plus 500 (Best Overall Options Trading Platform)

 

Features:

 

  • Year of Establishment: 2008

  • Headquarters: Haifa, Israel

  • Regulated by: Australian Securities and Investments Commission, UK’s Financial Conduct Authority, CySec, ISA, and MAS authorities.

  • Minimum Deposit Required: AUD200

  • Deposit Fee: None

  • Withdrawal fee: None

  • Trading Options - CFDs on Shares, Commodities, Forex, and Indices.

  • Platforms Supported: WebTrader

  • Inactivity fee: $10 per month after 3 consecutive months of inactivity

 

Pros:

 

  • Huge base of 22+ million customers

  • Serves 50+ countries

  • 2800 trading instruments

  • Great Customer Support

  • Low trading fee

  • Listed on the London Stock Exchange

  • An intuitive and seamless platform that includes a well-designed mobile app

 

Cons:

 

  • Provides a limited product portfolio

  • An inactivity fee is charged

  • Average research and educational tools

 

 

AVA Trade (Best Low-Brokerage Fees Platform)

 

Features:

 

  • Year of Establishment: 2006

  • Headquarters: Dublin, Ireland

  • Regulated by: Australian Securities and Investments Commission, IIROC, FSA, FFAJ, ADGM-FSRA, and BVI

  • Commission Fee: None

  • Deposit Fees: None

  • Trading Platforms Supported: MT4, MT5, AVaTradeGo, ZuluTrade, DupliTrade, Guardian Angel

  • Inactivity fee: $50 will be charged after 3 consecutive months of inactivity

  • Minimum Deposit: $100

 

Pros:

 

  • Globally renowned broker

  • The strong track record since 2006

  • Leverage of up to 20:1

  • Access all major exchanges including, NYSE, & FTSE

  • Trade Stocks, Indices, Crypto, CFD, and Commodities

  • Live multilingual client support

  • World-class learning tools and resources

  • Supports multiple trading platforms such as Desktop, Web, and Mobile

  • Numerous trading strategies

  • No Commission fee or brokerage fee

  • Good Customer Service 

 

Cons:

 

  • Highly complex navigation

  • Slow Updates 

 

 

CMC Markets (Best Platform for Advanced Research Tools)

 

Features:

 

  • Year of Establishment: 1989

  • Headquarters: London

  • Regulated by: ASIC

  • Monthly Fee: None

  • Inactivity fee: $15 per month is charged after 12 consecutive months of inactivity 

  • Trading platform: MT4, Stockbroking Standard and Pro platform, Next Generation trading platform, CMCMarkets Mobile Trading App

  • Options trading fee: $33 up to $10,000, 0.33% above $10,000

  • Standard brokerage fee: for ASX shares, AU$ 11 or 0.1% for the first 10 trades up to AUD 10,000

  • Membership Options- Classic, Active Investor, and Premium Trader

 

Pros:

 

  • Tailored training for new and experienced traders

  • Create a diverse portfolio using its wide breadth of trading opportunities - share trading investment products, forex, indices, commodities, shares, ETFs, and treasuries 

  • Competitive Brokerage Rates

  • Trades at lightning speed

  • Easy configuration, setup, and execution of orders

  • Provides advanced charting with 12 chart types, 80+ overlaps/indicators, and 35 drawing tools

 

Cons:

 

  • High stock brokerage and CFD fees

  • Fast trades

  • Charges inactivity fee 

 

 

CommSec Options Trading (Best Platform for Stock Trading)

 

Features:

 

  • Year of Establishment: 1995

  • Headquarters: Sydney

  • Parent Company: Commonwealth Bank

  • Regulated by: ASIC and is a member of the Australian Stock Exchange

  • Monthly Fee- None

  • Trading platform: It provides a patented CommSecIRESS trading platform for ASX-listed securities and global shares

  • Options trading fee: For online trading - $34.95 up to $10,000 in premium, for over the phone trading - $54.60 up to $10,000 in premium

  • Standard brokerage fee: $10 for Australian share trades up to $1,000 with a CommSec CDIA account.

  • Provides four levels of Options trading, each of them determining the type of strategies that can be used on them

 

Pros:

 

  • Provides access to international stock and securities

  • Entry requirements are minimal

  • Reputable and trusted brand name in Australia

  • Easy to use with no inactivity fee

 

Cons:

 

  • Inactivity charged on international account

  • Devoid of live chat support

  • If you are outside Australia, even if you happen to be a citizen, you can’t be able to use CommSec

 

 

IG Markets (Best Platform For Advanced Traders)

 

Features:

 

  • Year of Establishment: 1974

  • Regulations: Regulated across the globe by Financial Conduct Authority, Australian Securities Investment Commission, and the Federal Financial Supervisory Authority

  • Trading Platforms: MetaTrader 4, proprietary IG trading platform

  • Options trading fee: Commission is 0.1 unit of market currency for each open/close contract.

  • Standard brokerage fee: 8 AUD or 0.1% for each trade, whichever is higher.

 

Pros:

 

  • Has a global client base of over 178000 clients

  • Numerous global markets, including AUD, USD, EUR, SGD, GBP, and HKD.

  • Low margin 

  • High leverage

  • Provides limited risk trades

  • Advance chart technology

  • Ultra-fast and reliable trading platform

  • Among the safest and low-risk Australian brokers

  • Great educational tools

  • An extensive list of tradable products, featuring more than 100 forex currency pairs, options, CFDs, commodities, gold, bitcoin, indices, and other cryptocurrencies

 

Cons:

 

  • Charges $18 inactivity fee if inactive for 24 months

  • Limit product portfolio

  • Slightly higher fees and spreads on ASX share CFDs and indices than its counterparts

 

 

11. Frequently Asked Questions (FAQs)

 

 

Can I Profit From Options Trading?

 

Yes. One of the best benefits of Options Trading is that it can amplify your profits. It is because of the smaller investment price (the premium) compared to buying stocks directly. Let us understand it using an options trading example:

 

With regular stock trading, suppose you bought 100 stocks at $40, hoping the stock price will rise in the coming days. If the stock price moved in your speculated direction to $45 per stock, you could sell it at a profit.

 

The difference between the initial investment price of $4,000 and the increase to $4,500 is $500. It is the profit you have made (excluding brokerage costs).

 

Whereas when trading options, you don’t have to pay the full stock price for trading. You can buy a call option for the same stock at a premium of $1 with a strike price of $40. Since options contracts include 100 stocks, you can buy 40 contracts at $100 each. 

 

Now you hold 4,000 stocks, the same as your investment capital of $4000 from the stock example above. When the stock value rises from your set strike price, such as $40 to $45, the contract premium price also increases. This way, your profits are getting significantly higher through options.

 

 

Can I Trade Options on IG Australia?

 

Yes. IG trading platform provides the facility to trade in options. You will use CFDs to speculate on the option’s premium, fluctuating with the likelihood of being lucrative at expiry changes.

 

 

Can I Trade Stocks With Options?

 

Yes. In place of owning the actual stock, you can buy or sell the stock with options at an agreed price on a predetermined future date from its seller. Stock options trading in Australia is popular among traders as they need less initial capital compared to stock trading and have the potential to generate greater profits.

 

Instead of making a profit by buying or selling stocks, options traders earn profits from fluctuations in the stock price. Besides stocks, investors can trade options on various other assets such as indices, exchange-traded funds, bonds, and commodities.

 

 

Can A Beginner Trade In Options?

 

Stocks are better suited for beginners and long-term investors, while experienced active short-term investors frequently buy options. These investors have more experience and a strategic, flexible way of investing.

 

 

What Is The Best Options Trading Platform In Australia For beginners? 

 

eToro is the ideal share trading app in Australia designed for novice traders. It provides excellent resources that help to enter the trading world, carry out an in-depth market analysis, and access a virtual demo account with $100,000 to practice trading.

 

 

Can You Do Options Trading In Australia?

 

Yes, you can. You can trade options in Australia as exchange-traded options over the Australian Securities Exchange.

 

The ASX options market began in 1976, with more than 70 different companies, ETFs, and the S&P ASX 200 share price index to choose from.

 

Investors can buy stock options when trading them on the ASX from major Australian public companies. You can find the list of companies on the ASX website.

 

 

Can You trade Options With CommSec?

 

Yes. However, to trade in Options, you require:

 

  • a CommSec Share Trading Account in the same name

  • a CommSec Margin Loan or CommBank account, or Commonwealth Direct Investment Account that is in the same name for trades settlement 

 

If you don’t have any of the above accounts, you will need to open an Options account to perform Options trading using CommSec online trading platform.

 

 

Eligibility Criteria to open an Options Account with CommSec:

 

  • 18 years or older with an Australian residential and postal address

  • An Australian trust or SMSF

  • An Australian registered or incorporated company

  • Should pass the Options Trading assessment

 

 

Required Documents:

 

  • ID proof (passport or driver’s licence)

  • SMSF name and Australian Business Number 

  • Company details and Australian Company Number

  • Certified copy of the Trust Deed (if necessary)

 

 

How Much Does Options Trading Cost?

 

There are two types of fees for options traders:

 

  • The price of the option contract or the premium price.

  • Broker fees.

 

While the premium price is the same regardless of the trading platform you choose, the brokerage fee varies from one platform to another. So, consider this fee when deciding on an options trading platform in Australia.

 

 

Can I Option Trade With $100?

 

When considering popular options trading platforms, the minimum deposit fee can be up to $500.

 

  • eToro: $50
  • IG: Minimum Deposits: $450 

  • Ava Trade: $100

  • Plus 500: $100

 

CMC Markets is the only Australian trading platform that lets you trade in options at zero-deposit fees but charges a high brokerage fee in comparison to other trading platforms.

 

 

Can You Buy Options on Westpac?

 

Yes. Westpac offers the facility to trade exchange options over an underlying share or index listed on the Australian Securities Exchange. To trade options, visit their Share Trading page, and set up a Westpac Share Trading account to trade in Australian shares.

 

Existing Westpac Share Trading customers can set up an options trading account, sign in to their Westpac Share Trading account, and visit Products & Services > Derivatives > Options to start trading in Options.

 

 

Can Australians Use Robinhood?

 

Robinhood is a US-based financial service that provides a trading app to investors who wish to trade in stocks, ETFs, crypto, and other options. The service started in 2013 with over 5000 domestic and 250 global stocks.

 

It has become popular as it offers free trade facilities to its investors worldwide. Currently, Robinhood is not available in Australia. Only customers living in the US or the UK can use this platform. Some good alternatives to this service include:

 

  • eToro

  • Interactive Brokers

  • Capital.com

  • Stake Options

 

 

 How To Trade US Options In Australia?

 

For this, you need to find a trading platform that lets you trade in global markets. IG Markets is the best US options trading platform in Australia that serves numerous global markets, including the US.

 

 

How To Trade Options on Robinhood?

 

  • Download the Robinhood app for iOS/Android and create an account.

  • Learn the terminologies and working of Options Trading. 

 

Robinhood recommends taking an options trading course and reading option trading books like the Characteristics and Risks of Standardized Options ebook to get the basic knowledge of Options trading before you make your first trade. It is also important because the platform asks you a few questions to get approved for trading.  

 

  • Enable Options Trading. To do this, you need to answer a few verification questions related to Options trading and your current employment status. After reviewing your application, the concerned member of the Robinhood team will contact you if they find you capable of making responsible options trades. Once approved, you can “Enable Options Trading in your Robinhood settings”- Settings > Investing, Options, Enable Options Trading.

  • Now you are ready to start trading Options With Robinhood with various instruments such as stocks, ETFs, and options commission-free. 

 

 

12. Conclusion

 

Trading options is a great investment move for investors to profit from underlying securities. The potential for higher returns, protection from losses, and the advantage of flexibility make it a fantastic alternative trading strategy in a fluctuating market.

 

We hope the above information has helped you understand Options trading and the best options trading platforms in Australia to start making profitable trades.

 

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