Options Trading In Singapore
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Options Trading In Singapore - Introduction
Want to learn about options trading, fellow Singaporean?
What's the options trading scene in Singapore like?
Ever since the beginning of stock options trading in the US market, stock options, as one of the most versatile financial instrument in the
world today has found its place in major stock markets world wide as a popular hedging and speculative tool. Options trading, which was once
exotic and complex, is now one of the mainstream investment methods in the world today.
Options trading is also extremely popular in Singapore especially after the 1990s. In fact, options trading seminars are held in Singapore
almost every weekend with speakers both coming from overseas as well as locally. Singapore also produced a few famous options trading gurus
such as Mr. M. Kishore as well as Master Jason Ng of Masters 'O' Equity Asset Management. This article will
explore the history and how-to of options trading in Singapore.
The Options Trading Scene In Singapore
There are 2 main classes of options traders in Singapore; One learns and trades exclusively in the US market through online options trading brokers and
the other trades "Structured Warrants" in the Singapore market.
Why Singaporeans Trade Options In The US Market
Options trading in the US market was made popular through options trading seminars
and made possible by the popularization of
online options trading brokers
that accepts Singaporean accounts. Singaporeans could conduct options
trading directly in the US market through these online broker accounts and have their money conveniently wired to and from their accounts.
Singaporeans who trades options in the US market do so because it is the biggest and most
liquid options market in the world, resulting in much
more trading opportunities and grants exposure to international blue chips. Standardized
stock options
in the US Market also comes with a lot more
strike prices
across much more
expiration dates,
allowing the use of complex
options strategies.
So far, almost all options seminars in Singapore teaches and promotes
options trading in the US market.
Options Trading Clubs & Societies
There are many private options trading clubs and societies in Singapore that anyone with an interest in options trading can join.
These options trading clubs in Singapore organizes
regular meetups in order to share options trading experience and invites renowned speakers once in a while.
One of the most popular is the Options Trading Club Singapore. There are also plenty of forums and websites set up by Singaporeans discussing
options trading. To date, most of these options trading clubs and societies also concentrate on options trading in the US market rather than
structured warrants trading in the Singapore market.
Popularity Of Options Trading In Singapore
Popularity of options trading in Singapore definitely soared in the 2000s. At the time of this writing, so many Singaporeans searched for options trading information on the
internet that according to the keyword data provided by Google, the biggest number of search for the keyword "Options Trading" came from
Singapore while the USA only ranked number 5! What is most amazing is that Singapore has a population of only slightly over 4 million at the time of
this writing! The explosion in the popularity of options trading was ignited by the number of advertisements featuring options traders who made
thousands of percent in trading return as well as options traders who went from rags to millionaires. Even though most of these reports are isolated cases
that does not represent the true picture of options trading in general, it still started a wave of intense interest amongst the internet and
investment savvy Singaporeans.
Main Options Trading Tools In The Singapore Market
There are 2 main options trading tools in the Singapore market; Equity Index Options & Structured Warrants.
What Are Warrants?
Warrants are contracts between the issuer and the investor which allows the investor the right but not the obligation to buy or sell the
underlying stock at a fixed strike price during expiration like an European style stock option and are securitized so that they can be
traded exactly like a stock in a derivatives exchange. The underlying security in a warrant is delivered by the issuer upon
exercise
rather than by an investor holding the shares. Warrants are often issued along with IPOs in order to encourage the sale of the shares
when the warrants are exercised upon
expiration. There are 2 main types of warrants traded in the Singapore market; Structured Warrants and
Investment Warrants.
What Are Structured Warrants?
Structured Warrants are the Singapore market equivalent of Standardized Equity Options or Standardized Stock Options with the following
characteristics:
1) Call Warrants and Put Warrants work exactly the same as
Call Options and
Put Options.
2) Mainly European style. Can only be exercised during expiration. All
in the money
warrants are automatically exercised on expiration day.
3) Last trading day for Singapore structured warrants is 4 business days before its expiration day.
4) Customized expiration date and terms.
5) Mostly cash settled without physical delivery of underlying stock when exercised.
Differences Between Standardized Stock Options & Structured Warrants
Even though Singapore's Structured Warrants share the same trading characteristics of US Standardized Stock Options, it is really a totally
unique trading instrument. Structured Warrants are created more like over-the-counter
exotic options where the terms of each warrant is
highly customizable to meet the needs of the issuer and then securitized and publicly traded. In fact, the very same structured warrants
that are publicly traded in the Singapore derivatives exchange are traded in
over-the-counter markets (OTC) as well, while in the US, only non-standardized options are traded OTC. In short, structured warrant
is a form of exotic option that is capable of being traded publicly in the Singapore derivatives market.
Here is a list of main differences between Structured Warrants and Standardized Stock Options.
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Structured Warrants
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Standardized Stock Options
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Contract Terms
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Defined by issuer
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Standardized by exchange
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Trading
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Cannot be freely shorted
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Can be shorted
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Strike Prices
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Only those issued
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Usually a lot more strike prices and expiration
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Delivery
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Delivered by issuer
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Delivered by investors
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Due to these differences, especially the fact that structured warrants cannot be freely
shorted, the
hedging possibilities as well as the
kinds of options strateiges that can be executed using structured
warrants are a lot lesser than US standardized options. In fact, the only hedging strategies one can execute with structured warrants in the
Singapore market is the
Protective Put strategy and
delta neutral hedging using put warrants,
which acts in almost the exact fashion as a put option.
This is also one of the factors that made options trading in the US market more
attractive than structured warrants trading in the Singapore market for Singaporeans.
So far, because Structured Warrants can only be bought and not shorted, it is mainly used by speculators as a form of
stock replacement.
Read about the
Differences Between Warrants And Options.
How To Read Warrant Symbols?
Here is how a typical warrant symbol look like:
KepCorpDBeCW070205
KepCorp : The underlying stock.
DB : Bank in charge of the issue.
e : European Style.
CW : Call Warrant. PW represents Put Warrants.
070205 : Date in yy/mm/dd
The strike price of a structured warrant for stocks is not stated on the symbol itself.
Warrants Trading Strategies
As structured warrants in the Singapore market cannot be shorted freely, the only options strategy that can be executed using structured
options in the Singapore market are:
Long Call : Bullish strategy consisting of call warrant buying.
Long Put : Bearish strategy consisting of put warrant buying.
Fiduciary Call : Using call warrants to limit risk from buying of shares.
Protective Put : Use of put warrants to protect portfolio of stocks.
Long Straddle : Buying of call and put warrants simultaneously to speculate on a volatile breakout.
Stock Replacement Strategy : The strategic replacement of stocks using call warrants.
What Are Investment Warrants?
Investment Warrants are Structured Warrants that allows the holder to receive dividend payouts during the life of the investment warrants.
Investment Warrants cost more to own but has longer expiration and lower risk due to dividend payouts.
Symbols of investment warrants are identified by the "i" in place of the exercise style.
Example of Investment Warrant symbol: DBSMBLiCW081230
What Are Equity Index Options?
Equity Index Options and futures are certainly the most attractive financial instruments in the Singapore market. The Singapore market is the first
market in Asia to introduce Equity Index Options through the Singapore Exchange Derivatives Trading Limited, which is Singapore's derivatives
trading exchange. Investors can gain direct access to index trading in almost every major indices in Asia through Equity Index Options in Singapore.
Options Trading In Singapore - Conclusion
The Singapore market is a vibrant and growing market with an exciting options trading scene and I believe options trading in the Singapore
Market is going to be even more comprehensive and attractive in future.
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