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Put Option from SCB Quant

Today, The Nation reports SCB Quant's launching of an "insurance product".

Prompted by volatility in the capital market and continuing political uncertainty, SCB Quant Asset Management (SCBQ) has launched an insurance product that investors can use to cover the risk of investing in any stock in the Thai bourse.

Investors can nominate the securities, level of insurance coverage, period of maturity and day of inception. From these four variables, the premium charge is calculated. The rate can vary throughout any day, depending on market environment, but once set, the premium is fixed.

SCBQ gave an example: an investor might want to insure his or her purchase of 50,000 PTT shares for a period of 60 days. The share price is Bt200 apiece on the day the agreement takes effect. SCBQ calculates a premium of 2 per cent of the total stock value, or Bt200,000. The premium is non-refundable whether the stock rises or falls.

On the 60th day, when the agreement matures, if the price has fallen to Bt150 a share, the investor receives Bt2.5 million in compensation, and the value of the investment remains Bt10 million – minus the Bt200,000 cost of the coverage.

If the price of the shares rises above Bt200 apiece, the investor receives nothing from the insurance coverage.

The example above is the same as buying a long put option expiring in 6 month with strike price of ?200, with a premium of ?4 per share. The term is plain vanilla option, but in this case SCBQ will act as counterparty to their investors, and the premium is set by them rather than market mechanism. It should be quite popular in the currently volatile Thai market.

This is not the first time SCBQ comes up with fancy name for their derivative products. Last year's ROCA was OTC derivative tied to 3 major Thai stocks, with short strangle like payback. Like the ROCA, this product is aimed at individual investors, but only those already investing in SCBQ's private funds.

SCB Quant website