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Questions About Stock Market
- Thread starter jw5
- Start date
It means Extended Contract.....Please read through and Join me shorting the market
Extended Settlement (ES) Contract
Introduction
An Extended Settlement (ES) contract is a contract between two parties, to buy or sell
(a) a specific quantity (eg. 1000 shares) of (b) a specific security (eg. SIA) at (c) a specific price (eg. $19.70) for final settlement at (d) a specific future date (i.e when the contract matures or expires).
An investor who buys or long an ES contract enters into a contract to purchase the underlying security. And an investor who sells or short an ES contract enters into a contract to sell the underlying security. Having bought or sold an ES contract, the investor is not required to hold the position to maturity (or expiration), but may choose to liquidate the position through an offsetting trade in the same ES contract.
At expiration, if the position has not been offset, the contract is settled by physical delivery at the original traded price, as opposed to being cash settled.
The ES contract is the first marginable derivative contract to be offered for trading at the Singapore Exchange Securities Trading Limited (“SGX-ST”).
Benefits of trading ES contract
• Ability to take short position ES contract allow you to take short position rather than shorting in the ready market and facing the possibility of buying-in. This allows you to profit even in bearish markets. The transactional costs of gaining short exposure will be greatly reduced, as the relatively costly process of buying-in will not take place unless you hold the position until settlement and then fail to deliver.
• Avenue for hedging Price certainty can be achieved through hedging by locking in prices in advance or to protect against adverse price impact on the value of your assets.
• Arbitraging ES contract will provide opportunities for arbitraging between the ES contract and the ready market. When one instrument or market is cheaper and another related instrument or market is more expensive, arbitragers will buy the cheaper instrument and sell the expensive instrument. Such market activities will narrow the gap or difference between the stock and the ES contract prices.
• Greater flexibility to structure investment strategies ES contract offer investors unique trading opportunities such as calendar spreads and stock spreads.
• Capital efficiency ES contract are Marginable Futures Contracts. Margin collateral required is just a small portion of the contract value. You will be able to maximize the efficiency of your capital, as a relatively smaller amount of capital will allow you to gain exposure to a larger amount of securities.
• Ability to take longer view Each ES contract will have about 35 days to expiration (maturity) from date of listing. Compared to trading on the ready market, you will be able to take a longer view of the market.
Risks of trading ES contract
• Leverage ES contract trading is a form of margin trading in which the contract value traded is usually several times greater than the margin funds or collaterals deposited with the broking house. With leverage, it also means that the risk and return are similarly magnified several times.
• Overexposure and overtrading There is a danger that investors tend to look only at the margin required and often fail to appreciate and take into account the full contract value. This overexposure when investors trade in a large number of contracts, which may be significantly beyond their financial resources.
• Margin calls If the market moves against the position that you are holding, margin calls will be required to top up the short fall in the margin requirement level to maintain the position. In the case when an investor is unable to put in the additional funds, the broker may close out the position. In addition, the holder will still be liable for any further losses that may have resulted from the position being closed out.
• Buying-in If a short ES contract position is held to expiration, the investor is required to physically deliver the stock for settlement. In the event that the investor does not have the required shares in his or her account on settlement date, CDP will commence buying-in to satisfy the delivery obligation. This could increase the investor’s transactional costs.
Comparison: ES Contract Vs Warrants
An Extended Settlement (ES) contract is a contract between two parties, to buy or sell
(a) a specific quantity (eg. 1000 shares) of (b) a specific security (eg. SIA) at (c) a specific price (eg. $19.70) for final settlement at (d) a specific future date (i.e when the contract matures or expires).
An investor who buys or long an ES contract enters into a contract to purchase the underlying security. And an investor who sells or short an ES contract enters into a contract to sell the underlying security. Having bought or sold an ES contract, the investor is not required to hold the position to maturity (or expiration), but may choose to liquidate the position through an offsetting trade in the same ES contract.
ES contract
vs
Warrants
Immediate, near 100% hedge
(delta = 1.0)
Hedge depends on strike price and time to expiry
(at the money delta = 0.5)
Need not select a strike price
Must select a strike price
Breakeven from buy or sell price
Breakeven on call (put) is above (below) strike price
Cost is the cash to maintain margin, which forms part of settlement if contract is held to maturity
Cost is initial premium, which is subject to time decay
Greater liquidity and tighter bid/offer spreads are expected
Synthetic short of long put and short call (delta = 1.0) involved 2 transactions & cost
(Source: SGX)
Extended Settlement (ES) Contract
Introduction
An Extended Settlement (ES) contract is a contract between two parties, to buy or sell
(a) a specific quantity (eg. 1000 shares) of (b) a specific security (eg. SIA) at (c) a specific price (eg. $19.70) for final settlement at (d) a specific future date (i.e when the contract matures or expires).
An investor who buys or long an ES contract enters into a contract to purchase the underlying security. And an investor who sells or short an ES contract enters into a contract to sell the underlying security. Having bought or sold an ES contract, the investor is not required to hold the position to maturity (or expiration), but may choose to liquidate the position through an offsetting trade in the same ES contract.
At expiration, if the position has not been offset, the contract is settled by physical delivery at the original traded price, as opposed to being cash settled.
The ES contract is the first marginable derivative contract to be offered for trading at the Singapore Exchange Securities Trading Limited (“SGX-ST”).
Benefits of trading ES contract
• Ability to take short position ES contract allow you to take short position rather than shorting in the ready market and facing the possibility of buying-in. This allows you to profit even in bearish markets. The transactional costs of gaining short exposure will be greatly reduced, as the relatively costly process of buying-in will not take place unless you hold the position until settlement and then fail to deliver.
• Avenue for hedging Price certainty can be achieved through hedging by locking in prices in advance or to protect against adverse price impact on the value of your assets.
• Arbitraging ES contract will provide opportunities for arbitraging between the ES contract and the ready market. When one instrument or market is cheaper and another related instrument or market is more expensive, arbitragers will buy the cheaper instrument and sell the expensive instrument. Such market activities will narrow the gap or difference between the stock and the ES contract prices.
• Greater flexibility to structure investment strategies ES contract offer investors unique trading opportunities such as calendar spreads and stock spreads.
• Capital efficiency ES contract are Marginable Futures Contracts. Margin collateral required is just a small portion of the contract value. You will be able to maximize the efficiency of your capital, as a relatively smaller amount of capital will allow you to gain exposure to a larger amount of securities.
• Ability to take longer view Each ES contract will have about 35 days to expiration (maturity) from date of listing. Compared to trading on the ready market, you will be able to take a longer view of the market.
Risks of trading ES contract
• Leverage ES contract trading is a form of margin trading in which the contract value traded is usually several times greater than the margin funds or collaterals deposited with the broking house. With leverage, it also means that the risk and return are similarly magnified several times.
• Overexposure and overtrading There is a danger that investors tend to look only at the margin required and often fail to appreciate and take into account the full contract value. This overexposure when investors trade in a large number of contracts, which may be significantly beyond their financial resources.
• Margin calls If the market moves against the position that you are holding, margin calls will be required to top up the short fall in the margin requirement level to maintain the position. In the case when an investor is unable to put in the additional funds, the broker may close out the position. In addition, the holder will still be liable for any further losses that may have resulted from the position being closed out.
• Buying-in If a short ES contract position is held to expiration, the investor is required to physically deliver the stock for settlement. In the event that the investor does not have the required shares in his or her account on settlement date, CDP will commence buying-in to satisfy the delivery obligation. This could increase the investor’s transactional costs.
Comparison: ES Contract Vs Warrants
An Extended Settlement (ES) contract is a contract between two parties, to buy or sell
(a) a specific quantity (eg. 1000 shares) of (b) a specific security (eg. SIA) at (c) a specific price (eg. $19.70) for final settlement at (d) a specific future date (i.e when the contract matures or expires).
An investor who buys or long an ES contract enters into a contract to purchase the underlying security. And an investor who sells or short an ES contract enters into a contract to sell the underlying security. Having bought or sold an ES contract, the investor is not required to hold the position to maturity (or expiration), but may choose to liquidate the position through an offsetting trade in the same ES contract.
ES contract
vs
Warrants
Immediate, near 100% hedge
(delta = 1.0)
Hedge depends on strike price and time to expiry
(at the money delta = 0.5)
Need not select a strike price
Must select a strike price
Breakeven from buy or sell price
Breakeven on call (put) is above (below) strike price
Cost is the cash to maintain margin, which forms part of settlement if contract is held to maturity
Cost is initial premium, which is subject to time decay
Greater liquidity and tighter bid/offer spreads are expected
Synthetic short of long put and short call (delta = 1.0) involved 2 transactions & cost
(Source: SGX)
It means Extended Contract.....Please read through and Join me shorting the market
Extended Settlement (ES) Contract
Introduction
can summarize in your own words or not? i am having a headache today..
Why the dumb and convoluted system of ES/warrants and all that jazz when a more open/transparent/liquid options systems can be adopted just makes me think that these SGX derivatives are meant for uneducated punters hoping to make quick bucks by buying on the cheap.
It means Extended Contract.....Please read through and Join me shorting the market
I think theoretically, all the explanation all makes sense. To summarise, you can buy shares, and have one month to decide whether you want to buy, sell, or hold. The trouble is that from a liquidity point of view, there is no depth in the market, ie there are not enough people participating yet. Which means that when you want to sell just prior to the expiration date, there may be no takers.
A safer bet is to participate in CFDs (Contract for differences) which also allows you to long and short, and at margins too, varying between 3% and 20%. Google CFDs for more details.
A safer bet is to participate in CFDs (Contract for differences) which also allows you to long and short, and at margins too, varying between 3% and 20%. Google CFDs for more details.
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