Guide to Options Trading in Singapore (2024)

If you’re still a beginner in the world of trading, options can seem immensely overwhelming and daunting. That said, it’s easy to understand once you have learned its basics. Regardless of how complex options trading in Singapore seems, it will allow you to earn huge profits even in down markets.  

In this guide, we’ll discuss everything you need to know about Options Trading so you can prevent losses. We’ll also touch on some strategies you can follow to make your investment journey easier.

• What Are Options?
• Options Trading Singapore: Terms You Should Know
  • Holders and writers
  • Premium
    • Time to expiry
    • Level of the underlying market
    • The volatility of the underlying market
  • Strike Price
  • Expiration date
  • In the money
  • Out of the money
  • At the money
• Step by Step: How to Trade Options in Singapore This 2024
  • Choose a trading platform
  • Plan your investment strategy
  • Choose which options contract you want to buy
  • Place your trade
• Options Trading Plan Strategies Worth Following
  • Long call
  • Long put
  • Covered call
  • Short put

Options are tradable contracts that are used by investors to speculate whether the price of an asset will be lower or higher at a certain date in the future. However, this is done without the requirement to buy the asset.

For instance, if you expected the price of an asset to increase from $40 to $50 over the next month, you can decide to buy a call option that will give you the right to buy the market at $45 at any time within the month. When you buy the option, the price you pay is called the premium.

But what if the price of the asset rises over $45 (strike price) before your option has expired? Then you can buy the market at a discount. However, if the price stays below $55, you don’t have to exercise your right to buy it. You can just let your option expire. If this is the case, you just lost the premium you paid to open the position.

Here are some of the terms you should know when you want to start trading options contracts.

If you buy an option, you’re the holder. Meanwhile, the seller is the writer. For a call, the holder has the right to buy the underlying market. For a put, the holder can sell the underlying market to the writer.

This is the fee paid by the holder to the writer. This is determined by the following:

The longer time an option has before it expires, the more time the market has to pass the strike price. Therefore, an option will lose its value as it nears the expiration date.

The further below the underlying a call option’s strike is, or the higher above the underlying a put option’s strike is, the more expensive the premium will be.

The more volatile the underlying market is of the option, the more likely that it will pass the strike price. Therefore, the volatility increases the premium.

This is the price at which the holder buys (calls) or sells (puts) the underlying market on the expiry of the option.

This is the date when the contract is terminated.

This is when the underlying market’s price is above or below the strike. An option is “in the money” if the holder exercised the option and they can trade at a better price compared to the current market price.

This is when the underlying market’s price is below the strike or above the strike. It is “out of the money” if an option of exercising the option will incur a loss.

This is when the underlying market’s price is equal to the strike or close to being equal to the strike.

Ready to start options trading in Singapore? Here’s what you need.

To start options trading in Singapore, you need to have a stock broker that offers you this instrument. But first, you need to be:

• Be at least 18 years and over
• Must be a resident of Singapore
• Pass on your options trading assessment

Before you sign up, you also need to decide if you want to trade options from overseas or local markets. For instance, markets like the US have more platforms. You may also trade options on other securities such as indices, futures, forex, or commodities.

Take a look at these brokerages in Singapore that can give you access to trading US stock options contracts. By now, you may be wondering how much money do you need to start trading options? The minimum is usually $1,000 to $5,000, depending on your platform of choice.  

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As a beginner in options trading in Singapore, you must follow an investment strategy. This includes your objective, your time frame, how much you’re willing to trade, and your risk tolerance.

Options trading in Singapore is a lot riskier than passive investing so this may not be your best bet if you’re more conservative when it comes to your investments. Although you can make better returns with it, it’s also normal for beginners to take on a lot of losses.

By planning this investment well, including your entry and exit strategies, as well as the assets you want to buy, you can make a more informed choice and lessen your likelihood of failing.

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Note: Specific strategies to follow will be discussed in the next section.

After you’ve decided on the company share or asset you want to trade, the next step is to select your contract. All contracts have different expiration dates, strike prices, and option types. Take your time deciding to ensure you’re making the right choice.

Once you’re ready to place your trade, top up your account with enough money. There are many ways you can do this including bank transfers, credit cards, and many more.

After you’ve considered all the factors listed above, you can finally place your first trade. Don’t forget to consider the price or premium you want to enter the trade.

You also need to think about the time frame. When it comes to traditional asset trading, you can hold over the long term. However, that is not the case when it comes to options trading. The shorter time you have, the better. This is because the closer the option is to the expiry date, the less it will be worth.

Once you’ve determined the price, place your order. You can choose between a limit or a market order. A market order will execute at the current market price so this can be priced higher than you intended.

You need to remember that options trading in Singapore is more complicated compared to traditional stock trading. That said, this is not the type of investment where you learn as you go. You must educate yourself about it before you jump in.

Here are some strategies to keep in mind when trading options.

Buying calls is a great strategy when it comes to beginners, as well as investors who are confident in the price of particular stocks. Buying calls will allow you to take advantage of increasing stock prices as long as they sell before the expiration. When you follow this strategy, you can minimise the risk of trading. The risk for loss is only the premium that is paid to buy the contract.

Buying puts is almost the same as buying calls, but the investor’s goal is for the asset to decrease in value. This strategy is a useful alternative to short-selling since the risk is smaller. The only risk is the value of the premium if the asset rises over the initial strike price.

This refers to a two-part strategy. First, investors should own the underlying stocks of a company. Then, they must sell a call on their stock and get a premium.

For this strategy, the investors hope that the stock remains the same price or decreases slightly. This will push the buyer to let their contract expire and allow the investor to keep the premium. It’s a good strategy because you can generate income from the stocks you own while their share prices remain the same.

This is a good strategy to follow for investors selling an option. The goal of this strategy is to profit from premiums on options contracts. To illustrate this strategy better, imagine Person A is following a short put strategy and selling a put option to Person B.

If the price of the shares remains the same or increases, Person A will let the contract expire. If this happens, Person A will keep the initial premium and therefore profit from it.

It’s surprising how many people misunderstand options trading in Singapore as something that is impossible to understand, especially for beginners. The thing is, its complexity should not discourage people from working with it. If done right, investors can make a lot of money with this. 

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