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Derivatives Investment

SET50 Index Options

A SET50 Index Options contract is a type of financial derivative that represents a contract sold by one party (i.e. the option writer) to another party (i.e. the option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) the SET50 Index at an agreed-upon price (i.e. the strike price) during a certain period of time or on a specific date (i.e. the exercise date).
Types of SET50 Index Options
  • Call Options : The contract offers the buyer the right to buy the SET50 Index
  • Put Options : The contract offers the buyer the right to sell the SET50 Index
Advantages of SET50 Index Options Trading
  1. Speculation
  2. The ease of trading in and out of an option position makes it possible to trade options with no intention of ever exercising them. If you expect the SET50 Index to rise, you may decide to buy call options. If you expect a fall in the SET50 Index, you may decide to buy put options.

  3. Income generation
  4. You can earn extra income over and above dividends by writing call options against your shares, including shares bought on margin. By writing an option contract you receive the option premium up front. Although you get to keep the option premium, there is a possibility that you could be exercised against and have to deliver your shares at the exercise price.

  5. Risk management
  6. Put options allow you to hedge against a possible fall in the value of the shares you hold. This can be considered similar to taking out insurance against a fall in the share price.

Risks Associated with SET50 Index Options Trading
  1. Additional margin calls
  2. You may sustain a total loss of the margin funds deposited with your broker in relation to your positions. Your liability in relation to a written option contract is not limited to a written option contract or the amount of the margin paid. If the SET50 Index moves against your position or if the margin is increased, you may be called upon to pay a substantial amount of additional funds on short notice to maintain your position, or upon settlement. If you fail to comply with a request from your broker for additional funds within the time prescribed, they may close out your position and you will be liable for any loss that might result.

  3. Options writers face potentially unlimited losses
  4. Writing (selling) options may result in considerably greater risk than taking out options. The premium received by the writer (seller) is fixed and limited. However, the writer may incur losses greater than that amount. The writer who does not own the underlying shares or does not have offsetting positions could potentially face unlimited losses.

  5. Liquidity and Pricing Relationships
  6. Market conditions (for example, a lack of liquidity) may increase the risk of losses by making it difficult to effect transactions or close out existing positions. Normal pricing relationships may not exist in certain circumstances (e.g. during periods of significant buying or selling pressure, extreme market volatility or lack of liquidity in the underlying security).

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