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Tadawul launches SSOs with limited underlying assets:Main market Tadawul launched single-stock options (SSOs) — its third derivative product — yesterday, according to a Tadawul disclosure (pdf). The contracts will be cleared by the Securities Clearing Center Company (Muqassa).
What’s this SSO of which you speak? The instrument allows investors to hedge their equity portfolios — and traders to speculate on the price direction of the underlying asset.
Traders can buy SSOs for just four firms — for now: Buyers and sellers of SSOs on Tadawul are limited to trading contracts on underlying assets in four of the largest, most liquid firms on the main market including Aramco, Al Rajhi Bank, STC, and Sabic, according to Tadawul. Contracts are expected to include more companies in the future.
More and more instruments on Tadawul: Before SSOs, Tadawul launched its derivatives market back in 2020, where it first introduced MT30 index futures, followed by single stock futures in a bid to diversify and ramp up its product offerings to investors as part of vision 2030.
The American way: Physical settlement before the expiration date:Just like with Nasdaq stock options, SSOs on Tadawul will actually have to be physically delivered rather than paid. While some exchanges allow the buyers and sellers of SSOs to settle contracts by paying the difference between the market price of an asset and the strike price, others require them to deliver the actual asset, requiring the seller to either own the asset or be able to acquire it. Also buyers and sellers are required to exercise their options at a time before the expiration date, unlike European-style options where options are exercised on the expiration date.
There’s a minimum charge: Transactions have to be executed at a minimum value of SAR 1 mn.
SOUND SMART- Uhm, Enterprise? What SSOs? Single-stock options are contracts that give investors the right, but not the obligation, to buy (call option) or sell (put option) a specific amount of a particular stock at a predetermined price (strike price) within a specified time frame or expiration date. These options provide a way for traders to potentially profit from changes in the price of individual stocks without actually owning the shares. If the option is exercised, the holder can either buy or sell the stock at the agreed-upon price. Options can be used for various strategies, including hedging against price fluctuations, generating income, or speculating on market movements.
