can insiders buy options – A little over a day has approved since the Santiago Stock Exchange joined the global trend of the options market , an alternative that allows betting on another type of investment, focused mainly on maturities and fixed terms.
According to the Stock Exchange itself, this type of market consists of “the negotiation of standardized option contracts on underlying assets in its systems, which will cleared and settled in a central counterparty, as defined in their respective operating rules.”
“ When you buy options you are buying the right to buy or sell something in the future. You are not forcing yourself into anything and that is good. On the other hand, if you sell options, the scenario is more complex there and you could take on very large risks”, explains the partner of DVA Capital, Francisco Verdugo.
Thus, according to the Commission for the Financial Market (CMF) itself, this type of investment is aimed at “people seeking to hedge against financial risks and investors willing to take risks in exchange for a probable profit” .
Types of options
The first thing you need to know is that the options market in Chile is currently divided into three categories: stocks, S&P IPSA, and the US dollar.
The first of these is based on the most liquid papers on the Santiago Stock Exchange: Engel Americas, SQM-B, Banco Santander, Banco de Chile and Flabella . In this case, there call (purchase) and put (sale) type options, under the “American” style, that, they can exercised at any time between the day of purchase and the day of expiration, both inclusive.
On the other hand, the options on the dollar and S&P IPSA, the main index of the local market, are “European”, that is, they can only be exercised at the expiration of the contract.
“Complementing the above, there are options for different terms, but in general they do not usually exceed one year. Naturally there are longer options but they are not as long as an instrument that has a medium-term view like a bond”, details the economist and partner of PKF Chile, Hector Osorio.
“By buying options you are buying the right to buy or sell something in the future. You are not forcing yourself into anything and that is good. On the other hand, if you sell options, the scenario is more complex there and you could take on very large risks”, explains the partner of DVA Capital, Francisco Verdugo.
How to enter?
From Chile, the easiest (and regulated) option is through a stock brokerage or trading platforms, which, according to the Santiago Stock Exchange, can broker securities on behalf of their clients, previously signing the respective General Conditions between both.
In this line, the first step to contract or invest in an option is to go to one of these securities intermediaries, and inquire about the requirements, since there is a possibility that they may request additional conditions or obligations.
In order to acquire a call or put option, it is necessary to make an initial outlay (called “option premium”), the value of which depends, fundamentally, on the market price of the asset that the object of the contract, on the variability of that price and the period of time between the date the contract signed and the date it expires”, explains the CMF on its website.
However, unlike the stock market, characterized by long-term investment, the options market is the opposite, so the moment of when to withdraw or not will surely be within the conditions of each deal.
“Options, like all financial derivatives, are instruments that have the characteristic of being ephemeral, that is, unlike stocks and even bonds, they are instruments that have an expiration date,” explains Osorio.
It depends on the type of asset, as well as the conditions established in the purchase contract, and the period in which the liquidation carried out.
For example, from PKF, two costs stand out: access, which the commission charged by the intermediary which, depending on the volumes that traced, can be between 0.5% and 2% of the value of the purchase; and the value of the instrument as such.
“That value will depend on the nature of the underlying on which the option issued. For example, if I want to buy options on oil, that will have a certain price, which will be different from the options on copper”, explains Osorio.
In this sense, Verdugo adds that, although stockbrokers will charge a commission, additionally you have to add the value of the premium that must paid if you want to buy a call or put option.
“The determination of the value of the premiums depends on several technical factors, among them the current price of the underlying of the option. Before entering into this type of contract, you must have extensive knowledge of the market and the risks it entails. My recommendation would be that you do not occupy options unless you spend a lot of time to understand them very well ”, he adds.
In addition to intermediation charges for the service provided, it is necessary to clarify that this type of purchase or investment is generally not subject to taxes, as long as the amounts are not so high.
There is no specific tax for acquiring titles, in this case for acquiring shares. However, that person who has strong returns will face income taxes, details Osorio.
Income from derivatives, including share premiums, will considered as income , therefore, “it must considered when evaluating this type of investment,” adds Francisco Verdugo.