Derivative warrants (DWs) have grown popular among domestic and regional investors for stock speculation, as they provide better returns for short-term investment, securities firms say.
DW trade has been active, with daily value recorded above 2.2 billion baht, tallying a 13-month high.
The Stock Exchange of Thailand (SET) index flirted with 24-year highs at the end of September, with the bourse's trading value registering 58.7 billion baht per day.
According to Bualuang Securities (BLS), the most popular DWs in terms of valuation for September were products associated with the SET50 index, claiming a 45.7% market share. Investor interest gravitated toward the call category of DWs as a result of a continuous rise in the SET index.
The second-most active DW trade was in call DWs for Airports of Thailand Plc (AoT), with a market share of 3.2%. Investors were confident in AoT DWs because management had announced its business plan for 2018, eyeing a 5% increase in passenger traffic and 10% revenue growth.
The third-most active DW trade was in call DWs for Carabao Group Plc, with a market share of 2.3%. Investors cheered the company's plan to access the energy drink market in the US within 3-5 years after successfully entering the British market.
DWs are not a new product, as the SET has allowed this type of securities trading for 10 years. But DW trading in the first five years was not active because of several factors, such as the limited numbers of DWs offered to investors, slim trading liquidity, limited DW issuers and unrefined knowledge of DW trading.
At present, there are 13 securities companies offering DW products, with total DW series registered at 1,222.
Average DW trading is recorded at over 2 billion baht per day, with active trading seen in August and September after the SET's rally and the bourse's bullish investment outlook for 2018.
"DW trading will increase when the stock market becomes more volatile because investors who have an upside view can invest in call DWs, while those with a downside view can invest in put DWs," said Bannarong Pichyakorn, managing director of sales and trading business at BLS.
Mr Bannarong said the number of DW products and issuers is large enough for investors to compare and select an investment strategy.
There are also market makers who help increase DW trading liquidity, considered a supporting factor for building up the DW market in Thailand, he said.
BLS recommends avoiding investing in put DWs, which have a price lower than 10 satang because of a high rate in time decay -- between 2-10% per day.
Time decay is the ratio of the change in an option's price to the decrease in time to expiration. Since options are wasting assets, their value declines over time.
Weerasak Nimkhunthod, senior vice-president at Asia Plus Securities (ASP), said there are five active DW issuers in the market: BLS, KGI Securities, Macquarie Securities Thailand, Kasikorn Securities (KS) and ASP.
The firms differ in terms of DW product characteristics, said Mr Weerasak. For instance, KS launches DW products with a low gearing ratio and low time decay, which is suitable for investors with a low risk appetite. KGI Securities and Macquarie Securities tend to emphasise high gearing ratio with high time decay.
BLS and ASP generally offer a medium gearing ratio and standard time decay.
Gearing ratio is a measure of debt to equity.
Investors can select DW products matching their risk appetite, said Mr Weerasak.