New option strategies for global investors
Global equities continue to be the largest asset allocation of many investors.
International shares are the largest single asset allocation for AustralianSuper in its balanced portfolio, accounting for 28.5% and similarly for the Future Fund, accounting for an allocation of 22.9%. The recent tech stock revival has also seen other investors boost their allocations.
Some of these investors and their advisers, are recognising global equities can also be a volatile asset class and are seeking ways to better protect these investments.
To this end, the ASX has recently added options over Exchange Traded Funds (ETFs). ETFs may offer local investors the opportunity to increase exposure to sectors not heavily represented by local indices such as technology.
There are now three global ETFs with options available on them:
- ASX:IVV covering the ishares S&P500 ETF
- ASX:NDQ covering the Betashares Nasdaq 100 index ETF
- ASX:VGS covering the Vanguard MSCI International Shares ETF
International growth stocks, in particular US technology stocks, are known for their price volatility, as evidenced by the significant pull back in January to February 2022 and the significant downside price movements experienced by some of the technology ‘household names’ such as Amazon, Netflix and Tesla.
“The benefit is that sophisticated investors can now use options across a range of well-traded indices to protect themselves against volatility,” says Te Okeroa, Head of Sales, Trading and Customer Relationships at AUSIEX.
“ETF options combine the diversification benefits of ETFs with the use of options to potentially reduce volatility. “Options can be used not only to potentially protect investment portfolios, they can also amplify bets as well as generate additional income. If you expect a stock or index to rise, you can potentially amplify returns through lower cost options rather than buying the whole index.
New domestic options now also available
The ASX has also just listed a range of options on local stocks, such as Caresales.com (ASX:CAR), Corporate Travel Management (ASX:CTD), Fisher & Paykel (ASX:FPH), JB Hi-Fi (ASX: JBH), Reece (ASX: REH), Sandfire Resources (ASX: SFR), Soul Pattinson (ASX:SOL) among others on a trial basis.
“This indicates the increasing local demand for options,” he says.
There are also ‘weekly options’, which provide clients with more precise timing for their investment strategies.
“The versatility of options trading provides advisers with new ways to engage clients across the spectrum of requirements and start the deeper, more strategic conversations which can add real value to your relationships”, Okeroa says.
Should you want to find out more about options trading with AUSIEX and the support available, please get in contact.