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Exploring More Options

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  • Post last modified:December 21, 2018

Professional traders thrive on volatility, so there is a natural attraction to equity options and warrants.

Trading in these products has been a profit center for the Hong Kong Stock Exchange. So much so that the exchange just announced it plans to roll out more long term dated options for the HSI and HSCEI. In a press release, the exchange stated they are exploring maturities up to 5.5 years, subject to regulatory approval.

“These additional long-dated contracts will be useful for investment banks, portfolio managers and other market participants in managing their counterparty risk,” said Romnesh Lamba, HKEX’s Co-Head of Market Development.

Other efforts to expand their options offering were successful. Back in April for example, the HKEX listed options on Geely Automobile, Link Real Estate, and AAC Technologies Holdings Inc. Equity option trading is currently dominated by a few underlying tickers, Bank of China,CCB, Tencent, Sands China and HKEX.

Other popular products include futures, warrants and small cap stocks…all of which the HKEX has a solution for. Traders should note the main difference between options and warrants, dilution. Warrants are issued by a company and represent shares that are actually issued. Equity options on the other hand take shares from an existing shareholder in case they are exercised. Small cap stocks have been in the spotlight since the Enigma Crash, but that hasn’t stopped new firms from listing. Since the crash, 29 more deals have been placed on the Growth Enterprise Market (GEM), for a total of $2.3B HKD in capital raised.

To that point, interest in small caps has also been above trend. Since January 2016, the average daily turnover value of GEM stocks has been $513M HKD. The latest September period came in at $538M HKD, or 4.8% above average…a positive indicator for the health of the small cap market.