P235 CJJFAX 235 Fri 30 Dec 00:34/01 ] 1/6 ALL ABOUT OPTIONS Traded options confer on holders a right to buy or sell a security - shares, etc m at a fixed price and within a fixed period. At LJFFJ (page 299) traded options are avbilable 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 SHARJCHECK 220 Markets First Opt FT-SE 100 CityHeadsP235 CJJFAX 235 Fri 30 Dec 01:42/22 ] 2/6 ALL ABOUT OPTIONS Traded options conj in two shapes - "call " an t $hj buzjr of a call option has the right but not the obligation to bu a fixed number of share at a fixed price before a set date. hj bu jr of a put option has th right (but not th ob igation) to sell under the same limitations. Indivjdu l equ ty options may only bj dealt in whole contracts, each of which normally represents an option on 1,000 of the underlying Ghares, e.g. 1,000 XZZ shares. Options index 230 Headlines 201 Markets First Opt FT-SE 100 CityHeadsP235 CJEFAX 235 Fri 30 Dec 00:41/32 3/6 ALL ABOUT OPTIONS The fixed price at which a holder can buy (call) or sell (put) the underlying shares is known as the "exercise price". $hjsj 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 FT-SE 100 CityHeadsP235 CJEFAX 235 Fri 30 Dec 00:14/17 ] 4/6 ALL ABOUT OPTIONS The 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 Jul Jan Apr Jul XZZ 240 25 35 42 6 10 12 T254 2v0 14 24 31 14 18 20 280 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 date. So a contract is £250 (25p x 1000). Options index 230 Headlines 201 Markets First Opt FT-SE 100 CityHeadsP235 CJJFAX 235 Fri 30 Dec 00:51/08 ] 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. $hey are cash-settled on the basis of £10 per index point. So the cost of one index option contract is £10 x the premium. Options index 230 Headlines 201 Markets First Opt FT-SE 100 CityHeadsP235 CJEFAX 235 Fri 30 Dec 00:15/14 ] 6/6 ALL ABOUT OPTIONS Further details are avbilable in a LJFFE 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 enrujries may bj addressed to Julian Perkins or Tony Dawes in the Business Development Department at LJFFJ on tel. 071-379 2486. Options index 230 SHARJCHECK 220 Markets First Opt FT-SE 100 CityHeads