COVER FOR A SONG
Covered Warrants are similar to options – allowing traders to benefit from falling, as well as rising markets. They are listed on the London Stock Exchange (LSE), so can be traded through any stockbroker. They are leveraged, although your maximum loss is always limited to the initial amount invested. A strike price is set upon entry, above and below which the trade is struck out. Because they are geared instruments, returns are amplify the movements of the underlying – although traders don’t actually take property of the underlying, so are reliant on the solvency of the provider.
So far, the Market Master Challenge has thrown up shorting the FTSE 100 with a strike out at 5,500 as the most popular trade. This is followed by buying the Dow above 12,000 and a short on the FTSE below 5,400.
Turbos are also listed on the LSE and interestingly can be put under the umbrella of Self-Invested Personal Pensions (Sipp), although not a shares Isa. Turbos allow investors to choose a long Turbo if they anticipate a rise in the underlying, or a short Turbo if anticipating its decrease.
Turbos have an in-built knock-out barrier – a level is predetermined at issuance – limiting the downside risk to the investor’s initial investment. The size of the knock-out barrier is linked to the cost of the trade – as such, traders need to factor in volatility when picking the appropriate barrier for the trade.
The FTSE 100 dominates the top Turbo trades in the Market Master Challenge, with a short on the FTSE 100 with a knockout barrier at 5,800 the most popular, followed by going long on the index with a 5,200, then long at 5,000.
As with Covered Warrants and Turbos, Super10s are traded on the LSE and so can be bought and sold on the exchange during trading hours. Super10s generate a fixed payout of £10 per unit provided the underlying doesn’t touch, losing traders their initial investment. With Super10s you need to decide whether you expect the underlying to stay high, stay low or stay within a range.
So far, the SG Market Master Challenge has gold trading in a range between $1,500 and $2,000 as the most popular trade, followed by a stay high Super10 on the FTSE 100 above 5,100, then a stay high Super10 on the FTSE 100 above 5,200. The most popular stay low Super 10 has also been on the FTSE 100 below 5,800.
£195m has so far been traded in the Market Master Challenge. Although the stakes are imaginary, the prizes are very real, making the exercise potentially lucrative. It also offers a risk free arena to cut your teeth in trading these products. The fourth and final week starts today, so register at SGMarketMaster.co.uk for free.