Low Exercise Price Option

Low Exercise Price Option

In 1995 the Australian Stock Exchange started listing of new exchange traded option product called a Low Exercise Price Option (LEPO). A LEPO is a European style call option with a low exercise price of $0.01 and a contract size of 1000 shares to be delivered on exercise.

LEPOs are traded on margin. The premium is close to the whole share price, and a trader only posts margin, not the full price. Both the buyer and the seller are margined, all positions are marked-to-market daily. LEPOs work like a futures contract.

Read more about Low Exercise Price OptionDifferences From Standard Options, Pricing of Low Exercise Price Options

Other articles related to "low exercise price option, price, exercise":

Pricing of Low Exercise Price Options
... The current value of a contract is equal to the current price of the underlying share compounded by the risk-free interest rate, less the accumulated value of any dividends ... X = exercise price (equals $0.01) To prove that above formula is correct, we'll calculate price using Black–Scholes formula ... distribution function for a standard normal distribution For a LEPO an underlying price is very big compare to exercise price X ...

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