Options in the Singapore stock market offer foreign investors many attractive investment opportunities. These include both call and put options, which are derivative contracts that give the holder the right but not the obligation to buy or sell a particular product at a specific price before a specified date.
There are a variety of options available on the Singapore stock market. You can trade in Call or Put options, as well as in American or European style options. The minimum price increment for Options trading on the Singapore stock market is 0.05 Singapore cents. This makes Options trading a relatively affordable way to speculate on the movement of share prices.
The most popular type of option is call options, where you bet that the market will increase. These are riskier as they become profitable only when prices move up consistently from your initial investment point, making them risky for those who buy at current high prices or sell after seeing even a modest rally. If this happens, though, you will make much more money from trading options than those who bought futures contracts with no leverage involved.
Put options are less risky as it brings profit only when the market goes down. They entail a lower degree of risk as you buy them at current prices and do not need to worry about their resale value, as is the case with call options. With these, you lose money if prices move up but gain more than those who bought futures contracts by making money on futures contract costs if markets go down over time.
Put options are also used along with other derivatives for speculative purposes, where traders make bets on the impending direction of prices to make gains from either side. They provide a chance to make money when the market is perceived as having only two possible directions – where other derivatives like futures, swaps and forwards offer more choice in this respect.
Options trading strategies
People may either take up long positions (buying) or short positions (selling) when dealing with options.
Long positions are initiated when an investor believes that the underlying asset will rise in value. They purchase a call option if they think that the stock price will go up by the time the option expires and a put option if they think the price will go down.
Short positions are entered into when an investor expects the underlying asset to decrease in value. They sell a call option if they believe the underlying security price will increase and a put option if they believe it will decrease.
Advantages of trading options in Singapore
Despite many differences, both share the common feature that they usually end in expiration: this means that your option gains or losses depend on whether your prediction was correct and how much the price changes from your initial investment point; thus, they are dependent on factors like market volatility.
Risks associated with options trading in Singapore
In terms of risk analysis, both call and put options possess significant similarities and differences from simple futures contracts, and both have a positive correlation with the underlying stock. Both entail a high degree of risk for those who purchase them at market prices but can result in increased profits for their holders depending on the price’s direction.
If you are thinking about trading options on the Singapore stock market, do your research thoroughly beforehand and decide which option type suits your needs best, depending on, e.g. risk appetite and investment goals. Find out how much traders who hold that position typically gain or lose, their frequency of winning bets and stick to your plan no matter what happens to avoid any pitfalls. If you are a new investor, we recommend using saxotrader and trying out a demo account offered by Saxo Bank.