Options are known to be complex security investments and one of the key ingredients in a hedge fund’s portfolio.
If you have decided to pursue options trading for your financial needs, you must know the basic strategies before investing in listed options in Asia.
Below are some of the most common option trading strategies that you can choose from.
Call/put purchasing strategy
This strategy entails purchasing either a call or put option with potential upside while being aware of the risk involved.
The investor may buy an option contract based on his outlook on its value in two ways: First, an established trader who believes that the share price of the underlying asset will rise above the strike price within a specific timeframe can buy call options.
Second, if an investor believes that the share price of the underlying asset is likely to fall below the strike price before the expiration date, he may choose to purchase put options.
The call purchasing strategy
This strategy entails purchasing a call option with potential upside while being aware of the risk involved.
The investor may purchase an options contract based on his outlook for its value in two ways: first, an established trader who believes that the share price of the underlying asset will rise above the strike price within a specific timeframe can buy call options.
Secondly, if an investor believes that the number of shares or contracts traded over time by market makers and other designated participants in the marketplace.
Put purchasing strategy
This strategy entails purchasing either a put option with potential upside while being aware of the risk involved.
The investor may buy an option contract based on his outlook for its value in two ways: first, an established trader who believes that the share price of the underlying asset will fall below the strike price within a specific timeframe can buy put options.
Secondly, if an investor believes that the number of shares or contracts traded over time by market makers and other designated participants in the marketplace.
Call / put selling strategy
It is the opposite of the Call / Put Purchasing Strategy, where you sell call or put options.
You may sell an option contract based on your outlook of its value in two ways:
First, an established trader who believes that the share price of the underlying asset will fall below the strike price within a specific timeframe can sell call options.
Secondly, if an investor believes that the number of shares or contracts traded over time by market makers and other designated participants in the marketplace.
Straddle strategy
Straddle is a neutral strategy where you buy either a put premium or a call premium simultaneously.
This is considered relatively low risk but requires significant capital input because it involves buying both calls and puts option premiums.
Spread trading strategy
Spread trading is an options strategy where you buy and sell options simultaneously to benefit from a particular gap in the value of two options.
Now let us look at some tips you can note while trading listed options in Asia.
Learn how to diversify yourself properly
You may consider diversifying your portfolio by holding assets with higher expected returns but lower correlation against one another.
Moreover, if you are planning on shorting an option, you must understand that you are not borrowing stocks from the counterparty to sell.
Short selling of listed warrants is possible in Singapore Futures Exchange (SGX), but not in Hong Kong Exchanges and Clearing Limited (HKEx).
Finally
We recommend that people interested in working with complex financial tools such as listed options consider seeking professional help like Saxo Bank before deciding on their investment strategy.
If you wish to avoid all the risks involved, investing your money via index funds would be a more appropriate choice for your requirements.