Over
the past few weeks, weve discussed Covered Calls, which are regarded by many
professional investors as one of the most powerful investment strategies
available air yeezy glow,. But
what if you dont want to or cant write calls against the shares you own, or dont
own shares, but have other investments What are your optionsMargin requirements
for writing Covered CallsWhen you write a Covered Call, you must lodge your
shares with the Option Clearing House (OCH) as margin.
This step is
required to ensure that if you are exercised your shares are immediately
available to be sold lebron 8
shoes.As you are offering the shares as security, no further margin is
required.
There is a second method whereby someone who owns shares may
use those shares as collateral for the purpose of writing options air jordan 3. The OCH will assign
collateral value to shares that have been lodged as security, this system works
in the following manner:The OCH has established three tiers of shares acceptable
to be lodged as security:Tier One Any share that has exchange traded options may
be lodged as collateral.
For example, you could lodge NCP shares for the
purpose of writing BHP options pink foamposites.Tier Two Is
any share or units in entities within the ASX Fifty Leaders which do not fall
within the shares listed in Tier One.
Tier Three Is any exchange traded
security of Tier One shares, other than fully paid ordinary shares that meet the
following criteria: Issued capital represented by the securities must be a
minimum of $100 million, the minimum monthly volume must be in excess of 100,000
units and the minimum closing price must be at least $0.50.In defining how much
the collateral you have lodged is worth, the OCH applies a 30% discount to the
market value of your shares.The purpose of applying a discount is to guard
against a sudden change in the market value of your shares. Such a treatment
provides both you and the OCH with a buffer against unexpected market
volatility.Collateral must be lodged with the OCH by 4 pm of the day in which
the trade is initiated. So if you put a trade into the market in the morning you
must lodge your collateral by 4 pm on the same day. If you do not, the OCH will
treat it as an uncovered position and full margins are payable in cash by 11 am
on the following morning.As well as taking shares as security, the OCH will
accept a range of other financial instrument such as bank guarantees,
certificates of deposit and non bank bills of exchange.Lets start trading!Before
dealing in the options market, you must complete and lodge the OCH Client
Agreement Form.This document outlines that you are aware of the mechanics of the
options market, understand its risks and accept to be bound by its requirements.
OCH forms are available from your broker and are usually included in the account
opening packs which they will provide.The options market also has slightly
different settlement requirements to those associated with dealing in equities
(shares).