Use US index put warrants to hedge potential pullback of "more than 10%"
🔻It was a sea of red yesterday afternoon as the HSI, Nikkei225 and SIMSCI gave up morning gains to finish in the red. The S&P500 and Nasdaq-100 futures were also down by more than 1% by 420PM yesterday
⚠The glum mood came on the back of Wall Street CEOs forewarning investors of a significant selloff in the coming period as a normal feature of market cycles
💲Notably, CEO of investment manager Capital Group said in a summit yesterday that while corporate earnings are strong, valuations are currently challenging
👤Morgan Stanley CEO Ted Pick pointed out that investors "should also welcome the possibility that there would be 10 to 15% drawdowns that are not driven by some sort of macro-cliff effect," which is a "healthy development"
📰According to Bloomberg, the S&P 500 index is trading at 23 times forward earnings estimates, above its five-year average of 20 times. Similarly, the Nasdaq 100 Index fetches a multiple of 28 times, compared with nearly 19 times in 2022.
📈Put warrants can be used to hedge against short-term pullbacks as they tend to gain in price when the underlying stock/index comes off
✴As an example, Macquarie's trending put warrant tracking the S&P500 $S&P 5900MBePW260320(X1MW.SI)$ (https://warrants.com.sg/tools/livematrix/X1MW) was up 8.2% to SGD 0.066 yesterday given the 1% drop in S&P500 futures as of 430PM, while trending Nasdaq-100 put warrant $NASDAQ 22000MBePW260320(PZBW.SI)$ (https://warrants.com.sg/tools/livematrix/PZBW) was up 7.8% to SGD 0.055 on the futures' 1.3% decline.
✳Meanwhile, bullish investors may consider the trending call warrants $S&P 6850MBeCW260320(KWTW.SI)$ (https://warrants.com.sg/tools/livematrix/KWTW) and $NASDAQ 25500MBeCW260320(XJIW.SI)$ (https://warrants.com.sg/tools/livematrix/XJIW), as they track the movements in the respective underlying futures
📲One can use the Exposure Simulator tool to estimate the warrant investment amount needed to replicate an equivalent level of exposure to an investor's current shareholding
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
