Details of single-stock options contracts on Tadawul

Tadawul trading screen

The Saudi Exchange (Tadawul) is preparing for the launch of single-stock options (SSOs) contracts, which will be traded as of Nov. 27. In the first phase, investors will be able to trade SSO contracts for these companies: Saudi Aramco, Al Rajhi Bank, stc and Saudi Basic Industries Corp. (SABIC).

SSO contracts are standardized contracts with a single stock as its underlying asset. It derives its value from the underlying asset (shares) and provides its holders with the right, but not the obligation, to sell or buy these assets at predetermined prices and by certain dates.

Such contracts provide many benefits to individual and institutional investors, enabling them to hedge against risks and limit potential losses under adverse market conditions, in addition to building effective trading strategies. They focus on shares of one company instead of shares of several companies, in contrast to index contracts, thus enhancing access to the Saudi capital market with less capital, while increasing profitability by benefitting from the financial leverage.

There are two types of SSO contracts:

Call Options: It gives the buyer the right, but not the obligation, to buy the underlying asset and obliges the seller to sell the underlying asset upon the buyer’s request, at a predetermined price and during the contract term.

Put Options: It gives buyers the right to sell the underlying asset without obligating them to do so. However, the seller is obligated to buy the underlying asset upon the buyer’s request, at a specific price and during the contract term.

The following table shows the basic characteristics of the SSO contracts product on Tadawul:

Both stocks and SSO contracts are traded on Tadawul, both allowing for exploring the movement of underlying stock prices.

Exchange-traded derivative products involve risks similar to other financial market products. SSO contracts may expose trading parties to certain risks, including market volatility and market liquidity.