Speaking at the ASX office in Sydney yesterday, ASX manager for equity derivative sales Graham O’Brien pointed to a retail investor survey conducted by the firm in April.
The number one reason “far and away” that investors said they did not plan to trade options in the future was a lack of education, said Mr O’Brien.
“[Investors] think options are too risky, or they don’t fit [investors’] portfolios or strategies,” he said.
But there is an options strategy for any portfolio, and when “used wisely” options strategies can reduce risk rather than increase it, said Mr O’Brien.
A ‘call’ option gives the holder the right, but not the obligation, to buy a stock at a certain price. A ‘put’ option gives the holder the right, but not the obligation, to sell a stock at a certain price.
One of the big misconceptions in the ASX survey was that SMSFs are not allowed to engage in options trading, he said.
“People can use options in their SMSFs. They just can’t put a charge against their fund’s assets,” said Mr O’Brien.
Specifically, there are four simple strategies that SMSFs can use with options, he said.
Trustees can buy calls, although they cannot simply be bought for leverage, said Mr O’Brien.
SMSFs can also buy puts, which is a “perfect strategy” for trustees who want to protect their portfolios, he said.
“[SMSFs can] go and buy put options on their entire portfolio – if the market does have a fall then they’re protected against that,” said Mr O’Brien.
Trustees can also sell calls, but only against stock they already own, he said.
Finally, SMSFs can sell puts “as long as they’ve got the cash to cover their obligation to buy those shares if it were to be exercised”, said Mr O’Brien.
