The local market has gained little in that period  – down 30 points or 0.3% since the beginning of March.  It is when investors look behind these raw numbers that things get more interesting.

The latest Options Trading Game ran from April 29 to May 31 – during which time the market moved up 330 points and down 300 points, offering opportunities for both bulls and bears, as the chart below shows. [Note: the green bars in the chart show the daily high/low close for the S&P/ASX 200 index during that period].

Although options may sound complicated to many investors, it was the simplest of strategies that benefited Game players the most:

• Buying Calls when traders thought the market would go up, and
• Buying Puts when they thought the market would go down.

Bullish Trades

The leverage effect of options is what generated the increased profits for bullish game players. 

The table below looks at the top two game trades and compares the profit generated in the options game versus what profit would have been generated if implemented in equities, through the ASX Sharemarket Game.

Source: ASX

The AGL options trade provided 28 times the profit of a stock trade, while the CBA options trade yielded 222 times the stock trade profit. 

The downside to both trades is that with call options, if the market had not moved in the investor’s favour over the month, then the full cost of the option could have been lost – versus a fraction of the total cost if the trader had bought stock.
 

Trading Like a Bear

Taking a ‘short’ or bear view on the market is a little harder for share investors as short selling is not accessible to all. Instead, buying puts over a stock or index can potentially provide an opportunity to profit if the market falls.

In the last week of the game, the S&P/ASX 200 Index fell sharply (150 points in two days). Game players who bought index put options on Friday 26 May saw large virtual gains on both the following Monday and Tuesday. 

The overall game winner turned a $50,000 put purchase on the Friday into a virtual $275,000 by close of business Tuesday – a remarkable move in a short period.
 

Lessons to be learned

The latest Options Trading Game showed that markets can potentially provide short-term trading opportunities – regardless of the over-arching conditions.

When trading options, the Game also showed that simplicity can often be the trader’s best friend – buying a call when they think the market will go up, buying a put when they think it will go down.

Importantly, the activity seen in the game was risky. Game players had $50,000 virtual cash to spend and there was no recourse for those who picked the direction wrong. They lost the game. 

Only half of the game players profited in the month of the game, while the other half lost, and will be thankful it was virtual not real money.

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