Index options may be a trading tool that advisers can potentially use in several ways to optimise overall investment outcomes for their clients. In Australia, index options over the S&P/ASX 200 may allow advisers to implement their views on the biggest companies in the local sharemarket holistically.

Recent volatility in sharemarkets may have brought hedging strategies to the forefront of advisers’ minds. Index options may be well suited to this purpose – but they can also fulfil other roles in portfolios across the market cycle.

Essentially, index options may allow advisers and their clients to take a position based on whether they think the S&P/ASX 200 is to rise or fall. There are several use cases which highlight why such an approach may be advantageous to suitable investors – ranging from conservative strategies to speculative trading:

• Risk mitigation: Index options may offer advisers a cost-effective tool for hedging portfolios in a single transaction, particularly in volatile market environments. This strategy can help protect capital from a potential market fall without the need to sell underlying shareholdings. It may also avoid capital gains tax implications and disruptions to a long-term investment strategy. This may potentially appeal to clients who are relatively risk averse.
• Income generation: Investors seeking additional income could consider writing index call options. This strategy requires a single transaction, rather than separate transactions for each stock in a portfolio. It may be suited to clients with a moderate risk appetite who are looking to increase their yield – but are also prepared to have the options exercised against them. AUSIEX trading data shows there has been a steady increase in advisers selling call options for income over 2025, 30% of which are over the S&P/ASX200 index.
• Speculative trading: Investors with a high risk tolerance and a strong view on the direction of the market could use spare capital to enhance returns with leverage from index options. Such investors would typically have relatively high regular income and/or substantial capital available for investments. Importantly, they should be able to withstand losses without financial distress and be able to meet potential margin calls.

So, what are the nuts and bolts of S&P/ASX200 index options? As with other Exchange Traded Options, there are put and call index options with different exercise prices. 

S&P/ASX200 index options are European style – which means they can only be exercised on the expiry date and they are cash settled against the ASX Opening Price Index Calculation of the S&P/ASX 200 Index on expiry. No physical shares are exchanged.

The premium (price of the option) is not set by the ASX. It is negotiated between the buyer and seller of the index option through the market. The premium for an index option is calculated by multiplying the premium by the index multiplier. For example, a premium of 30 points, with an index multiplier of $10, represents a total premium cost of $300 per contract.

The option premium will fluctuate during the options life depending on a range of factors including the level of the index, volatility of the underlying index, the time remaining to expiry date, dividends, and general risks applicable to markets.

Advisers trading in index options may need to be aware the volatility of an index may also be influenced by factors more general than those that can affect individual equities. These may range from economic indicators such as, but not limited to, expectations of changes in inflation, unemployment, and interest rates.

Australian Financial Services Licence (AFSL) holders generally require their advisers to obtain Accredited Derivatives Adviser Level 1 (ADA1) or Accredited Derivatives Adviser Level 2 (ADA2) accreditation to provide derivatives advice.

It is also worthwhile choosing a broker with staff who have completed the same training – and have the necessary experience to assist brokers , particularly during periods of market volatility.

For more information about index option strategies or trading, contact the AUSIEX business development team.