Listed options to trade in Singapore

Listed options to trade in Singapore

As a nation, Singapore is famous for its business-friendly policies and low corporate tax rates. Because of this, there’s no surprise that Singapore is home to many multinational and large local corporations.

One of the most common ways to invest in these companies is by applying for options listed on the stock exchange. These options allow investors to buy or sell stocks at a predetermined price within an allotted period. Options can be used as hedging instruments to minimise losses from falling prices or as bullish bets when prices are expected to increase further over time.

Types of listed options to trade in Singapore

Here are four of the primary listed options to trade in Singapore.

American Options

American options are the most commonly traded type of option and can be exercised at any time before expiration. It gives investors the flexibility to exit their position anytime they please, making American options ideal for traders looking for short-term profits.

European Options

European options can only be exercised on the expiration date, meaning investors do not have the flexibility to exercise their options later. It makes European options ideal for long-term positions with high net profits, but it also limits the potential downside of the position in case of short-term price fluctuations.

Asian Options

Like European and American options, Asian Options require that trades settle on the same day as the transaction date. During this period, the profit or loss from the investment is calculated at either end of the settlement date based on whether there was an uptick or downtick in the price for listed securities, such as stocks and futures contracts.

Asian options are similar to standard options, except you can only exercise them at maturity instead of being traded with multiple exercise dates. It gives investors significant return potential over just holding a stock position when its market price falls in line with their prediction or estimation by expiry time.

Binary Options

Binary options are a type of exotic option that offers investors a fixed payout or loss at expiration, depending on whether the underlying asset is above or below a designated strike price.

The payoff for a binary option can be as high as 100%, making this type of options trading very lucrative. However, binary options also come with a high degree of risk, so it’s essential to understand all the risks associated with this type of investment before you start trading.

Trading strategies for listed options

There are some effective strategies traders can use when trading listed options;

Bull Spreads

A bull spread is an options strategy used when the investor believes that the underlying security price will rise over time. This strategy aims to profit from the increase in value of the underlying security while limiting the number of potential losses.

To execute a bull spread, the investor buys a call option and sells a call option with a higher strike price. It creates a net credit for the investor and limits the downside if the underlying security price falls. However, the upside potential is also limited if the underlying security price rises.

Calendar Spreads

A calendar spread is an options strategy used when the investor believes that the underlying security price will experience volatility soon. This strategy aims to profit from this volatility by buying options with one expiration date and selling options with a different expiration date.

To execute a calendar spread, the investor buys a call or put option with one expiration date and sells an equal number of options for a different expiration date. The effect is the same as if the investor had bought and sold options on different days but without trading in between.

Final Word

Each of these six types of listed options offers investors a unique way to profit from price fluctuations in the market. By understanding each type’s different advantages and disadvantages, traders can develop a more comprehensive trading strategy that suits their individual needs. Beginner traders are advised to use a reputable online broker, Saxo Bank. Click here for more information.