U.S. Citizens - Trading the Australian Market is Easy

January 17th, 2008 | Trading Strategies

The reason I have written this post, is because Option Credit Spreads can sometimes be more suited to shares on the Australian Stock Exchange (ASX), rather than the USA Stock Exchanges, due to the tighter spreads and therefore lower exposure to risk.

Most option spreads on the USA stock exchanges are a minimum $2.50 apart, whereas on the ASX they can be as low as just 25 cents.

This can affect your risk to reward ratio.

For example, a credit spread that is $1.00 apart for 1,000 shares gives a risk of $1,000 less the premium received for the credit spread. But the risk for the same number of shares where the spread is $2.50 gives a risk of $2,500. Moreover, the “bought” (debit) part of the spread would be further “out of the money” than the “sold” (credit) part, which would mean your net credit should be greater, but so also would be your risk. You would need to assess your “Return on Risk” percentage at a $2.50 spread on strike prices vs the same on a spread of only $1.00.

This being the case, there is an easy solution for U.S. citizens who wish to trade on the ASX.

We recommend OptionsXpress as your broker. With them, you can open one account and use it to trade both the USA and Australian stock exchanges. You can also create a direct link from your US Bank Account to your OptionsXpress account, using their ACH facility, so that funding and withdrawing from your account becomes easy.

Trading option credit spreads on the ASX then becomes straightforward. Your order goes “direct to market” which means there are no live human beings processing your order. It’s all done over the internet, using their state-of-the-art web interface.

OptionsXpress are also one of the most competitive in the market, having won numerous awards. You can trade 10 contracts for 1,000 shares each, for only $23.50 for each leg of the spread (total cost $47).