Writing an Option: How Australians Can Earn Income & Hedge in 2025

Writing options—sometimes called selling options—has long been a core strategy for both professional and everyday investors. As Australia’s financial markets evolve in 2025, more individuals are exploring option writing for income generation, risk management, and portfolio diversification. But how does it work, what are the pitfalls, and what do the latest rules mean for your strategy?

What Does It Mean to Write an Option?

When you write (or sell) an option contract, you’re granting another investor the right—but not the obligation—to buy or sell an asset from you at a specified price before a certain date. In return, you pocket a premium upfront. This is different from buying options, where you pay the premium for potential upside.

• Writing a call option: You may have to sell the underlying asset if the buyer exercises the option.
• Writing a put option: You may have to buy the underlying asset if the buyer exercises the option.

Let’s say you own 100 shares of CSL Ltd trading at $300 each. You could write a call option with a $320 strike price, expiring in one month, and collect a $5 per share premium. If CSL stays below $320, you keep both your shares and the premium. If CSL rises above $320, you’re obliged to sell at that price—potentially missing some upside, but locking in gains plus the premium.

Why Write Options? Key Use Cases in 2025

Writing options isn’t just for Wall Street pros. In 2025, more Australians are using this strategy for:

• Generating extra income: Collecting premiums can boost overall returns, especially in sideways or slowly rising markets.
• Hedging risk: Writing covered calls can offer downside protection if share prices fall, cushioning volatility.
• Strategic portfolio management: Put-writing can help investors buy quality assets at lower prices if assigned, or earn income if not.

Options trading on the ASX has surged, with retail and SMSF investors increasingly using covered call ETFs and direct option writing. In 2025, several Australian brokers have streamlined access to options, but they require investors to pass a suitability test and acknowledge the risks.

Risks, Rewards, and 2025 Regulatory Updates

While option writing can be lucrative, it’s not without risk—especially if markets move sharply against your position. Key considerations for Australians in 2025 include:

• Unlimited risk for naked call writers: If you write a call without owning the underlying asset, losses can be theoretically unlimited if the price skyrockets.
• Potential for assignment: You may be required to buy or sell shares at unfavourable prices if options are exercised.
• Capital and margin requirements: In 2025, ASIC and the ASX have updated margin rules, requiring higher capital buffers for certain uncovered positions and more transparent risk disclosures for retail investors.

Recent changes from the Australian Securities and Investments Commission (ASIC) have also introduced stricter educational requirements for brokers offering options to retail clients, and product intervention powers to curb high-risk option marketing. As a result, investors should expect more detailed risk warnings and scenario modelling before executing trades.

Real-World Example: Covered Call Writing on the ASX

Suppose you own 1,000 shares of BHP Group and want to generate extra yield. In March 2025, you write one-month call options with a $50 strike price, collecting a $0.40 per share premium. If BHP closes below $50 at expiry, you keep your shares and the $400 premium. If BHP surges to $52, you must sell at $50, but you’ve still captured the premium and any gains up to the strike price.

This “covered call” strategy is particularly popular with income-focused Australians, including retirees and SMSFs, seeking steady cash flow while managing risk.

Tips for Writing Options in 2025

• Start with covered calls or cash-secured puts—these limit your downside compared to “naked” writing.
• Stay informed about ASX and ASIC rule changes, especially new margin and disclosure requirements.
• Use options calculators and scenario tools (now standard with most brokers) to understand your potential outcomes before trading.
• Consider tax implications—option premiums are generally treated as income, but outcomes can vary based on your personal circumstances and whether you’re trading inside a super fund.

Conclusion

Writing options can be a powerful tool to generate income and manage portfolio risk, but it requires a clear understanding of the mechanics, risks, and latest regulatory changes. With the right approach, Australians can use option writing to navigate the complexities of today’s markets and build more resilient investment strategies in 2025.