SGX: Structured Warrants Turnover Value Up 6% in September

OREANDA-NEWS. Total traded value in structured warrants rose 6% month-on-month to $311 million in September on the back of greater market volatility while total volume increased 3% to 2,982 million units. As at end-September, there were 200 warrants outstanding offering exposure to a spectrum of Singapore, Hong Kong, China and Japanese benchmarks and blue-chips.

Call Warrants Gained Share

The increase in turnover was led by call warrants with turnover value increasing 10% month-on-month to $194 million.

Call warrants represent an efficient means for investors to can free up capital by buying the warrants instead of the underlying assets and yet maintain an equivalent level of exposure to the underlying assets. 

Call warrants on single stocks provide investors the opportunity to leverage their views on company-specific or sector-specific developments.

The top traded stock warrants in September were on DBS, OCBC, UOB and Keppel Corp.

Eight New Nikkei Warrants in October expiring in March 2016

Aside from warrants on single stocks, index warrants offer a convenient avenue to participate in the broad market performance arising from global market developments or national economic indicators. Macquarie has listed eight new warrants tracking the Japanese Benchmark Index.

Please note that if an investor holds these warrants to expiry, the cash settlement amount is based on the difference of the final settlement price (FSP) of the Nikkei 225 Futures contract in the expiration month and the exercise price of the warrant, adjusted by the conversion ratio and exchange rate.

The FSP for the Nikkei 225 Futures is the Special Quotation, which is computed based on the opening price of each component stock in the Nikkei 225 on the day following the last trading date of the futures contract.

Puts & Calls

The eight new Nikkei Warrants tabled above are made up of four call options and four put options. Investors with existing long positions can use Put Warrants as a hedging tool against a possible decline in the price of the underlying asset.  Should the market fall, losses could be partially or even fully offset by the appreciation of the Put Warrant. 

There has been an increase in Nikkei 225 Index put positioning in recent months.  Participation in other derivative markets associated with the Nikkei 225 Index reveals bearish option positions relative to bullish contracts have grown to the largest levels in more than three years. This has coincided with a bout of weak expectations that saw the Nikkei 225 Index move from 20,946 on 11 August to 16,901 on 29 September. Yesterday the Nikkei 225 Index ended between those two levels at 18,186.  

Average implied volatility for the Nikkei 225 Index increased to 30% in September, up from August’s average of 21%, which saw the SGX Nikkei Option put-to-call ratio rise to above 1.3. This was almost double the put-call ratio from three years ago when the Nikkei 225 Index was trading between 8,000 and 9,000.

SGX Nikkei 225 Index Options : Put-to-Call Ratio of Outstanding 

Positions

SGX offers extended trading hours for the SGX Nikkei 225 Index Futures and Options until 2am Singapore time, covering the London close. With the mutual offset system (MOS) facility with the CME, investors can manage overnight risk and close-out positions easily. The finer tick (2.5 basis points) of SGX Yen Nikkei 225 Index Futures compared to the domestic Large Nikkei Futures (5 basis points), allows for greater precision and price efficiency, while it is also available for trading on Japan holidays.

Like structured warrants, SGX Nikkei 225 Index Futures and Options are are Specified Investment Products (SIPs). Under MAS’ guidelines to enhance safeguards to retail investors, brokers must assess if investors have the relevant education, knowledge or experience before they can invest in SIPs. SIPs are products that have structures, features and risks that may be more complex in nature.