Role Of Options In Active And Passive Investing Strategies In Singapore

options trading active vs passive investing strategies

Options trading is a type of investment strategy that has gained popularity in Singapore recently. Many investors in Singapore turn to options as an effective way to diversify their portfolios. Options are contracts between two parties that give the buyer the right to buy or sell a specific asset at an agreed-upon price on or before a certain date. As such, they can be used as part of active and passive investing strategies. 

Regarding active investing strategies, options can help investors take advantage of short-term market movements by allowing them to enter positions with limited risk and potentially high returns. For example, if an investor expects the price of a particular stock to increase over the next few days, they can purchase a call option at a lower cost. If their speculation is correct, the option's value will increase, and they can take profits by selling it for a higher price. 

Options may also be used in passive strategies, such as covered calls or put options. Often referred to as "insurance policies", these are used to protect existing positions in volatile markets. By writing (selling) an option on an asset you own, you can generate additional income while retaining your position. For instance, if you own stocks declining recently but think they may rebound soon, you can write a call option against them to create extra cash flow while protecting yourself from further losses should the stock continue going down. 

Finally, options can be used as part of a hedging strategy involving taking two negatively correlated positions to reduce risk. For instance, if an investor owns company shares but is concerned about potential losses due to market volatility, they may purchase puts on the same stock to protect themselves from any losses should the price decrease. By simultaneously entering into both long and short positions, investors can effectively manage their risk while still having the opportunity to benefit from any market movements. 

The Advantages Of Using A Broker When Investing In Options 

Using a broker to trade options is often beneficial for investors, particularly those new to the strategy. Brokers provide access to up-to-date market information and expertise, allowing investors to make informed decisions and potentially increase their returns. 

One advantage of using a broker is that they can help you assess the risk associated with specific options trades. It is essential in volatile markets, where predicting future price movements can be complicated. A broker can help you determine which options and strategies are most suitable for your goals and financial situation based on market conditions and other factors. 

Another benefit of using a broker when trading options is that they can provide education on the different types of options available and how they work. Understanding these nuances can make it easier to develop an effective trading strategy considering the risks associated with each type of option and its potential rewards. 

Brokers also offer access to sophisticated analysis tools that may not be available through self- directed trading platforms. These tools allow investors to identify opportunities and trends more quickly than if investing independently, making capitalising on short-term market fluctuations easier. 

Overall, while investing in options without the aid of a broker may appear more straightforward in theory, enlisting the services of one provides numerous advantages, especially for inexperienced investors, that can translate into higher returns over time. Therefore, many investors in Singapore should consider engaging a professional when entering into an options trade agreement. 

How To Start Trading Options In Singapore 

Options trading has become increasingly popular in Singapore, with many individuals and companies investing in this financial instrument to diversify their portfolios or hedge against adverse market conditions. 

To start trading options in Singapore, interested investors must open an account at a broker offering the service. They can be done through mainstream banks like DBS and UOB and online brokers such as Saxo Capital Markets and IG Asia. Additionally, it is essential to obtain the necessary licenses from the Monetary Authority of Singapore, depending on the size of your investment. For more information go to


Options provide investors various tools for managing their portfolios and executing effective investment strategies in Singapore. Whether active or passive, options offer flexibility and allow investors to take advantage of short-term market movements or protect themselves from potential losses. As such, they are becoming increasingly popular as traders look for ways to diversify and maximise their passive income returns.

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