Market volatility can significantly impact the success of traders in the financial market. It refers to the unpredictable and sudden changes in market prices, which can cause substantial losses or gains for traders. As a result, traders need to have strategies in place to navigate market volatility effectively. One such approach is hedging, which involves taking positions that offset potential risks from other investments. In Singapore, traders can use hedging strategies when trading listed options to minimise their exposure to market volatility. This article will discuss how traders can navigate market volatility by using hedging strategies when trading listed options in Singapore.

Use of protective puts

Protective puts are a favoured hedging technique traders use to protect their investments from potential losses due to market volatility. This method involves purchasing put options, which give the holder the right to sell the underlying asset at a specified price within a specific time frame. By holding protective puts, traders can mitigate the risk of their investments decreasing in value due to market volatility. If the market price drops, the put option will increase in value, offsetting the losses incurred on the underlying asset.

The protection provided by protective puts can be especially beneficial for traders who have a long position on an investment and want to protect it from downside risk. Traders can also sell their put options if the market becomes less volatile, reducing their cost of hedging and increasing potential profits. However, traders should also consider the premium they pay … READ MORE ...