2017 06 Surf image Gyrostat

The progression of investment risk management - protect and benefit in changing markets

Feature article:  Insuring your investments – how the ASX options market works

Executive summary

  •  Similar in purpose to buying insurance on your house or car, you can ensure you don't lose significant amounts of your investment capital on the ASX.
  •  Buying protection for your shares is termed a put option.  When buying put options you pay a premium to lock in a value for shares you own at the agreed value or exercise price.
  • Options can be used to either reduce risk (hedge -not risky) or to speculate (can be risky). Options are sometimes considered risky and overlooked. 
  • When you buy protection to hedge risk (the Gyrostat approach) it is the ASX who is the counter party. 
  •  The ASX imposes collateral requirements on the seller of the option. The ASX had over $ 6 billion collateral from market participants at 30 June 2016


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