TSX index options provide a way to bet on the S&P TSX 60 Index, which tracks the stock prices of 60 large Canadian corporations. These options trade on the Montreal Exchange and you can buy or sell them via an online brokerage account. You can buy call or put options, which benefit from a rising or falling index, respectively. When buying options, the most you can lose is your initial investment. You can also write, or sell, these options to collect their current price, or premium. However, your potential loss can far exceed the premium you receive because you must pay the buyer when the option expires at an increased value, no matter how great the increase.
Establish an online brokerage account with permissions to trade index options. You must apply to your broker for these permissions. Although the requirements vary from one broker to the next, they usually require option-trading knowledge and experience, especially if you plan to write options. You can learn about options trading from the Nasdaq website and other financial sites, as well as by reading books about options investing. You can gain experience by running make-believe test trades on software platforms designed for this purpose, which are often provided by online option brokers.
Fund your account. To buy TSX index options, you need enough cash in your account to pay the premiums and any commissions or fees. If you want to write index options, you must deposit a substantial amount of collateral -- cash or securities -- to ensure you can pay for any losses. Your broker sets the amount of collateral you will need to post, but the amount normally greatly exceeds the option's market value.
Decide on the trade characteristics: put or call, buy or write, opening or closing a position, number of contracts, expiration month and strike price. TSX 60 index options expire on the third Friday of the expiration month. The strike price is a set value of the TSX 60 index that determines the current price of the option and its final value at expiration.
Place your order via the broker's trading screen. The ticker symbol for the TSX 60 index option is SXO. Enter the trade characteristics and confirm the trade as the broker's software directs.
