Foreigners Step Up Options Trading on Volatile Korean Stocks

For years, the South Korean exchange sought to lure investors to its single-stock options with little success. That’s starting to change. 
The recent bout of volatility that’s pushed up equity trading also sent the volume of the contracts surging. The number of options on companies including brokerage Mirae Asset Securities Co., battery-materials supplier LG Chem Ltd. and biotech Seegene Inc. reached peaks. Chip giant Samsung Electronics Co., the nation’s biggest firm, saw trading of its contracts climb to the highest level since 2018. 
All told, nearly 107 million puts and calls worth 1.45 trillion won on individual shares changed hands this year through Oct. 16, more than ever before and roughly double the trading for all of 2023, data from Korea Exchange show.
While volume of single-stock options remains small when compared with South Korea’s $1.8 trillion cash market and other derivatives, the increased trading during the recent gyrations is pushing investors to expand their strategies. A gauge tracking swings in the Kospi 200 Index just posted its highest quarterly average since early 2022 as the equity measure erased its gain for the year. 
A lot of what’s happening is coming from investors outside of South Korea seeking to hedge their growing exposure, according to Jun Gyun, a derivatives analyst at Samsung Securities Co. 
In the cash market, exchange data show the value of Kospi Index companies traded by foreigners has reached almost 3 trillion won daily this year, the highest since at least 2010, on hopes the nation will improve its corporate governance and on optimism surrounding artificial intelligence. Last month, they were responsible for about 40% of the single-stock options trading. 
While the options market in places including India, the US and Hong Kong has boomed in recent years, investors in South Korea have traditionally managed risk using different products. The bourse has sought to boost liquidity and tighten spreads by offering incentives to market makers, but interest in contracts on individual equities remains largely non-existent among domestic funds. 
This year, Korea Exchange started listing new single-stock options every six months to reflect the rebalancing of the Kospi 200, and it plans to have them on 58 firms by the end of December, up from 42 in 2022. Eventually, the goal is to offer them to all Kospi 200 stocks, said Peter Jeong, director general at the bourse’s equity-derivatives business. 
Joey Colebatch, head of equity options at Optiver in Sydney, says the market has the potential to expand much more. 
“There are already a lot of the ingredients for growth in the single-stock options space,” including a mature and active index-options market, Colebatch said. “Even with the impressive growth we’ve already seen, it wouldn’t be a surprise to us if it’s 10 times bigger, for instance, in the coming several years.”
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