SET50 Index options: The complete story

These words have been attached to the perception of “options” by financial media and certain investors for too long. 

However, have we ever realised that we deal with some form of options in our daily lives such as insurance and warrants? If so, is it true that options are too risky or complicated? 

In other markets, options are highly popular since, when understood and used correctly, they provide increased cost efficiency and reduced risk when combined with other products.

Options have the potential to deliver higher returns and offer some strategic alternatives.

Looking at 2014 statistics from the Futures Industry Association, options alone accounted for over six billion contracts or about half of global derivatives trading. Furthermore, six out of the 10 top traded contracts were options. 

The most popular options contracts are the CNS Nifty Options with 526 million con?tracts, SPDR S&P500 ETF Options with 374 million contracts and KOSPI 200 Options with 326 million contracts. The K-pop contract was the world’s most liquid contract for more than 10 years. 

In Asian markets with similar characteristics such as India, Korea and Taiwan, we start to see a similar pattern for their success in the options market. Their options contracts are very well designed. They have profes?sional market makers. They have a user-friendly trading platform and on-going educational programme. 

This year, the building blocks for a successful options market in Thailand are becoming more apparent. The Thailand Futures Exchange (TFEX) started trading options in 2009 but liquidity was low. Last year, trading surged 66 per cent to 108,855 contracts. Options are just now starting to get the attention they deserve.

The SET50 Index options contract has been readjusted to better fit the trading style of local investors. The strike price interval has been widened from 10 points to 25 points. The number of series per day has been reduced significantly and the contract size of the SET50 Index options now matches that of the SET50 Index futures, allowing for easier strategic trading.

To boost liquidity, TFEX welcomes five market makers to help perform continuous quoting. They are KGI Securities (KGI), Ausiris Futures (AUF), Phatra Securities (PHATR), Trinity Securities (TNITY) and Maybank Kim Eng Securities (MBKET). Investors can now trade with more confidence, knowing that they can enter or exit the market whenever they want.

Settrade.com Co has just launched “Options Wizard”, a brand new options trading tool that is very user-friendly. It is designed for beginners in options. 

It simplifies options trading by eliminating all the confusing options theories and leaving investors with only a few basic decisions to make. 

For example, what do you think about the direction of the market? How long do you want to hold options? And lastly, how much do you want to invest? 

The program is also integrated directly into the already popular web-based trading program “Streaming”, so anyone with a derivatives trading account can start using this program immediately.

TFEX and its members will host weekly options seminars throughout the year. They range from the basic to more advanced levels to suit investors’ needs. Interested parties can go to the TFEX website for a detailed schedule. These training classes are free of charge and seats are going fast.

 Options provide a very flexible trading tool that suits investors’ various needs, either speculation or hedging. Although options used to seem complicated with little liquidity, we believe that this year we have put in place infrastructure that can facilitate the success of the options market.

 

Rinjai Chakornpipat, managing director of TFEX.