Saturday, September 6, 2008

STI Warrants Trading Tips

Do you trade STI warrants? This is a high risk high reward instrument. Unless you have the necessary tools and techniques, it is risky to trade. It is for trading, not for investment as it's price decays overtime.

Just want to share my observations trading and monitoring STI warrants:

  1. I prefer to trade STI warrants issued by SGA as I find the pricing is reliable. Other market makers might use their own method for calculating STI, so their pricing might not follow the STI value you see. Also price movements don't really track STI correctly, but not for SGA.
  2. High volumes of STI warrants traded – due to people short selling either the call or put warrants when STI moves in the reverse direction. Why? They can make money faster as 1 bid = 4-6 STI points. Whichever warrant price jumps 1 bid faster, they will short/long that warrant. They buy in 200k to 300k lots, take profit every 1-2 bids.
  3. Trade warrants which are in the money or near the money because can make money faster, as explained in item 2 above.
  4. Choose warrants 2 months before expiry, stop trading 2 weeks before expiry.
  5. If you can read STI direction correctly, holding it overnight can make big profits when STI gap up or gap down. But very risky.

Are you aware of the above?

In Part 2, I'll share with you tools I use. Me no expert in warrants trading, just sharing my observations lah.

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