Over recent weeks, we’ve discussed Covered Calls, which is viewed by many professional investors among the most effective investment strategies available. But what if you dont want to or can’t write calls against the shares you possess or don’t own shares, but have other investments? What are your options? When 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 stocks are immediately open to be sold.
As you are providing the stocks as security, no further margin is required. There’s a second method whereby someone who owns shares could use those stocks as collateral for the purpose of writing options. Tier One Any talk about that has exchange exchanged options might be lodged as collateral. For example, you could lodge NCP shares for the purpose of writing BHP options.
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Tier Two Is any share or models in entities within the ASX Fifty Leaders which does not fall within the shares detailed in Tier One. In determining how much the guarantee you have lodged will probably be worth, the OCH applies a 30% discount to the marketplace value of your stocks. The purpose of applying a discount is to protect against a sudden … Read the rest