Options Trading In Singapore

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.

Structured Warrants Standardized Stock Options
Contract Terms Defined by issuer Standardized by exchange
Trading Cannot be freely shorted Can be shorted
Strike Prices Only those issued Usually a lot more strike prices and expiration
Delivery Delivered by issuer Delivered by investors

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:


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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