The options market is inaccessible to new and inexperienced investors. Many factors come into play for successful exchanges of options to take place, such as time value, volatility of the underlying asset, and moneyness (if it’s in-the-money or out-of-the-money). The Options Industry Conference conducted by HKEx brought together industry experts who shared their insights on the difficulties facing investors dealing with the Hong Kong Options Market. Check out this link for more information.
One concern was raised regarding the lack of analyst research available for options contracts. Most securities reporting and analysis only focused on conventional equity and futures trading rather than tackling advanced derivatives like options. As a result, there were insufficient resources for novice traders to learn how to trade options.
Another challenge that arose was the terminology used in the market. Options terms were typically derived from English or American slang, making it difficult for Asian traders to understand specific terms. However, there are ongoing efforts by HKEx and other industry stakeholders to standardise all terminologies so as not to confuse investors. You can deal with these challenges in various ways.
Find a mentor
Table of Contents
To successfully learn to navigate the options market, investors usually seek mentors or people with experience in options trading. These individuals are generally industry veterans who have been around for years and understand all the nuances of the marketplace. Asking them to teach you how to trade is an excellent way to introduce yourself into the market, as most brokers would be open to tutoring new traders under their wing.
As part of HKEx’s efforts, different measures were made available for investors seeking help navigating through the options market. One such measure is the “Options Trading Strategies” guide developed by securities analyst Daniel Wong from Industrial Bank Co Ltd (SEHK: 8315). In this guide, investors would be able to learn about the different terminologies and technical tools that are required in options trading.
Practice makes perfect
Since there is a lack of analyst research for this market, investors must practice independently. One way to do it would be through “Naked” options trading, where you can trade options without having them backed by underlying securities. This provides novice traders with the ability to test out their skills without risking too much capital compared to investing in real securities with actual money. For more experienced traders, they have the freedom of experimenting with complex strategies while at the same time reducing risk since they know how these strategies work.
Before delving into any options trades, investors should familiarise themselves with its mechanics. Picking up a good broker who provides tutorials on the exchange’s mechanics is essential to your trading journey. It would be tough for somebody new to take the plunge without knowing the basics of options contracts, including how it is priced, time value, moneyness and its Greeks.
Stay updated with current market news
Industry experts are always looking for ways to stay updated with current market news to not miss out on any lucrative opportunities. One way would be subscribing to professional industry newsletters that happen weekly or daily, depending on your preference. Hong Kong Options Report is one firm that offers regular updates related to the different events surrounding this market in Hong Kong.
Don’t be afraid of risk
Another common mistake that novice traders often make is being afraid of taking risks. Options trading does come with its fair share of risk but knowing how to manage these risks minimises loss. There are specific plans that you can employ to do this, such as the ones listed below:
- Divorcing market risk from your options trades using options spreads and other advanced strategies
- Diversifying across different options contracts in a single security
- Using various time frame charts to identify trends and patterns
Regardless of your approach, it’s crucial to have a thorough understanding of what you’re getting into when trading options. You may face many challenges along the way, but overcoming them should always remain at the forefront of your mind.