JSX launches stock option contract<\/p>\n
Rendi A. Witular, Jakarta<\/p>\n
The Jakarta Stock Exchange (JSX) launched on Wednesday a stock
\noption contract, a new trading instrument aimed at helping
\ninvestors avoid massive losses resulting from a major shock in
\nthe bourse.<\/p>\n
JSX president director Erry Firmansyah said the new instrument
\nprovided a better mechanism to protect investors. This would, in
\nturn, increase liquidity in the market and lure new investors,
\nErry said.<\/p>\n
"The instrument can hopefully minimize the possibility of
\npanic stock selling, which would adversely affect the Jakarta
\nComposite Index. We expect the instrument will help widen the
\n(market's) investor base," Erry said.<\/p>\n
A contract option gives investors the power to protect the
\nvalue of their investments because it allows them to hedge the
\nprices of their shares against any downturn.<\/p>\n
The contract confers the right, but not the obligation, to buy
\n(call option) or sell (put option) a particular stock for a
\nspecified price (strike price) agreed upon by both parties on or
\nbefore a specified date. Each contract represents 10,000 shares.<\/p>\n
If over a specified period of time the market price of the
\nstock rises above the agreed price, the buyers can earn handsome
\ngains since they only have to pay the contract price for the
\nstock. Likewise, if the market price falls below the agreed
\nprice, sellers can unload the stock at the contract price,
\nminimizing their losses.<\/p>\n
An example Erry said was an investor who bought shares of an
\nautomotive company for Rp 7,650 per share. Foreseeing security
\nconcerns in the near future, the investor decided to use the
\ninstrument by paying a certain premium to hedge the shares at Rp
\n7,500 per share.<\/p>\n
If a week later, a terrorist attack rocked the capital market,
\nand caused the share to plunge to Rp 3,000, an investor with the
\noption could still sell the shares at Rp 7,500 each. Investors
\nwho did not subscribe to the hedging facility would have to sell
\nat Rp 3,000.<\/p>\n
Five bluechip stocks will offer the contracts: Telekomunikasi
\nIndonesia, Astra International, Bank Central Asia, HM Sampoerna
\nand Indofood Sukses Makmur.<\/p>\n
The companies are picked based on several criteria -- they
\nmust have been listed for at least 12 months, have at least 2,000
\ntransactions a month, a daily volatility of at least 0.5 percent,
\na minimum share price of Rp 500 per share and a market
\ncapitalization of Rp 500 billion (US$55 million) or more.<\/p>\n
Erry said the JSX would review the companies every six months,
\nto ensure continued to qualify for the option, and to consider
\nnew companies.<\/p>\n
The instrument is to be arranged by 39 securities firms,
\nincluding Bhakti, BNI, Ciptadana, Danareksa, Kim Eng, Mandiri,
\nand Trimegah securities.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/jsx-launches-stock-option-contract-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
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