It is not easy to become an options trader in Singapore. You need to be aware of the broad market direction, understand how to apply covered calls, manage risk, etc. But there are ways to learn these skills if you follow some basic rules and keep at them consistently. Here are five steps on how to be a better options trader in Singapore:
Learn about the big players that influence market movements. This includes learning about current events worldwide (e.g., central banks), what factors affect oil prices (e.g., turmoil in Iraq), where companies sit within their industry cycle, e.g., which have just released good/bad news?
Most of the Singapore stock exchange news has already been analyzed, so do not simply rely on brokers or friends for information. You can read about current events from reliable sources such as Reuters and Bloomberg. In terms of the market dynamics of a particular industry, you can read annual reports from companies listed in that sector to understand what factors they are most concerned about, e.g., regulations from a specific government agency.
If you keep up to date with how the broader market is doing, i.e., S&P 500, Nikkei, etc. – this gives you more context on why your stocks went up/down on a given day – e.g., if one of your equities increased by over 10%in one day due to a takeover, you will appreciate why your stock did well. It is also essential to keep track of your supplies and the sector itself – the news, in this case, may not have any bearing on what happens to a particular company, but it does impact how that sector performs in general.
Suppose a significant coal miner in Australia has just announced huge losses. In that case, their stock price will decrease by more than other coal companies (at least temporarily) since they are already at the bottom. Equities try to discount future earnings; if one sector starts doing badly, investors get nervous about equities within that sector internationally.
Options traders need to be aware of two types of risk: directional and non-directional. Directional risk is where you expect a stock to go up or down – if it ends up going the opposite way, your trade may suffer losses. Non-directional can be either positive or negative – this means that even if the stock moves the way you were expecting, you still make or lose money depending on whether it moved more or less than expected (the absolute value difference).
For example, buying calls when the stock is trading at $5 and expecting it to go above $6, you could buy one contract of Jan $7 call options (trading at 0.80/contract), which implies that you expect SGH to move by about 5% in 1 month. If, instead, SGH went up to $7.20, the Jan $7 call options would be trading at about 1.00, and you could sell your chances for a 20% profit or 0.2 x ($700/contract). If SGH went down to $4.80 instead, you could buy back your warranty for a loss of around 30%, or 3 x ($300/warranty).
The key is to look at how much risk you are taking on when deciding which strategies to use – do not just blindly follow breakouts as implied volatility levels can explode if there is bad news out (leading to significant losses)
Do not try and force a trade just because there’s news coming out – most moves happen within hours/days after the word has come out, so if it takes longer than that, the move will be more minor or nonexistent. If you believe in a company, then holding onto your position even when there is bad news about that particular company will usually pay off in the long run.