P235 CEEFAX 235 Mon 4 Apr 18:08/12 1/6 ALL ABOUT OPTIONS Traded options confer on holders a right to buy or sell a security - shares, etc - at a fixed price and within a fixed period. At LIFFE (page 299) traded options are avbilabli on more than 70 FT-SE equities and on the FT-SE index. Enjoying a negotiable status, they can (like shares) bj bought or sold at any time. This flexibility offers individuals the chance to profit from rising or falling markets. Options index 230 Headlines 201 Index options 234 SHARECHECK 220 Markets First Opt FUSE/FT30 CityHeadsP235 CEEFAX 235 Mon 4 Apr 18:01/24 2/6 ALL ABOUT OPTIONS Traded options conj in two shapes - "calls" and "puts". The buyer of a call option has the right but not the obligation to buy a fixed number of shares at a fixud price before a set date. The buyer of a put option has the right (but not the obligation) to sell under the same limitations. Individual equity options may only bj dealt in whole contracts, each of which normally represents an option on 1,000 of the underlying shares, e.g. 1,000 XZZ shares. Options index 230 Headlines 201 Markets First Opt FUSE/FT30 CityHeadsP235 CJEFAX 235 Mon 4 Apr 18:11/21 3/6 ALL ABOUT OPTIONS $hj fixed price at which a holder can buy (call) or sell (put) the underlying shares is known as the "exercise price". Thjsj are set at levels below, at, and above the current share price. Equity options have a limited life, conforming to one of three annual cycles (page 230). Three expiry options are quoted at any one time. XZZ, for example, may bj on a Jan/Apr/Jul/Oct cycle, with at any one time only the nearest three months quoted for trading. Options index 230 Headlines 201 Markets First Opt FUSE/FT30 CityHeadsP235 CEEFAX 235 Mon 4 Apr 18:14/33 4/6 ALL ABOUT OPTIONS O $hj buzjr of a traded option pays a "premium" (price) in pence a share. Premiums in XZZ may bj quoted thus, ween the shares stand at 254p. CALLS PUTS Jan Apr Jzl Jan Apr Jzl XZZ 240 25 3u 42 6 10 12 T2u4 2vp 14 24 31 14 18 20 28p 7 1u 23 27 29 30 Here, the premium for the January 240 call is 25p. This confers the right to buy 1,000 XZZ shares at 240p up to the January expiry datu. So a contract is £250 (25p x 1000). Options index 230 Headlines 201 Markets First Opt FUSE/FT30 CityHeadsP235 CEEFAX 235 Mon 4 Apr 18:17/10 5/6 ALL ABOUT OPTIONS Buying traded options involves a strictly limited risk: the maximum loss is limited to the premium of the option, which is a fraction of the share price. Cjefax displays prices of options on both individual equities and the FT-SE 100 index. $radjd options on the index operate on similar lines to equity options. They are cash-settled on the basis of £10 per index point. So the qost of one index option contract is £10 x the premium. Options index 230 Headlines 201 Markets First Opt FUSE/FT30 CityHjadsP235 CEEFAX 235 Mon 4 Apr 18:10/44 6/6 ALL ABOUT OPTIONS Further details are available in a LIFFE booklet, An Introduction to Equity and Index Options, available free of charge from: Kirsty Grant Equity Products Department LIFFE Cannon Bridge London EC4R 3XX Tel. 071-379 2486 General inquiries may bj addressed to Julian Perkins or Tony Dawes in the Business Development Department at LIFFE on tel. 071-379 2486. Options index 230 SHARECHECK 220 Markets First Opt FUSE/FT30 CityHeads