Investors need to understand clearly about the date What is derivative maturity? to be able to perform portfolio management such as closing positions, taking profits/cutting losses effectively during derivative investment.
1. What is derivative maturity?
To understand What is derivative maturity?, let's HVA find out. The derivative maturity date is the last day of trading derivative contract products. On this day, the current month's contract is settled into cash and transferred to the following months for continued trading. In the Vietnamese market, the date derivative maturity normally falls on the 3rd Thursday of the maturity month, and if it falls on a holiday, the immediately preceding trading day will be considered the maturity date. Settlement takes place on the business day immediately following the maturity date.
In the early stages of a contract, the market is usually quiet and trading is stable. However, as the expiration date approaches, the excitement increases, especially in the two days before expiration when investors focus on executing position earthquakes. Therefore, it is important for investors to have a firm grasp of the expiration date so that they can take important steps such as closing positions to effectively lock in profits/cut losses.
If the position is not closed before the contract expires, the investor will not be able to keep the buying position and will not be able to actively decide the take profit/cut loss price as desired.
- To illustrate, suppose an investor opens a long position of 10 VN30F2206 futures contracts with an expiration date of June 16. To close the contract and buy a new futures contract, the investor must close the position on or before June 16 to realize the profit or loss on his investment. If he fails to do so, he will still hold the contract but will lose the right to buy the position.
- To maintain a long position, an investor needs to sell a contract to close out the current position and then buy a new contract in the following month (open a new long position). At this point, the settlement value of each contract will be linked to the closing price (ATC) of the stock on the last day.
2. Things to note on derivative maturity date
Day derivatives maturity is an important event in the financial markets, and here are some things to watch out for on derivatives expiry dates.”
Derivatives Expiry Schedule
The maturity date of derivatives in Vietnam is usually on the 5th day of the 3rd week of each month. However, market dynamics can change this schedule, so it is important to check the specific maturity date of each derivative product and exchange. This will help you plan carefully and make the right decision before the maturity date.
Position Management
Is an important element of a derivatives maturity investment strategy. Managing a derivatives maturity position requires consideration and discipline. You need to make decisions based on careful information and analysis, and always be ready to adjust your strategy as the market situation changes.
Here are the basic principles of position management:
- Close position before expiry: A popular choice to avoid price volatility and market instability on the expiry date.
- Select contract expiration: If you decide to participate, determine whether you want to buy or sell the derivative contract, based on your strategy and market predictions.
- Market analysis: Before the expiry date, analyze both the underlying and derivative markets to understand the market trends and conditions.
- Risk Limits: Set stop loss and take profit to protect positions from unwanted fluctuations.
- Liquidity: Ensuring the ability to exit positions quickly when necessary is especially important in liquid derivatives markets.
- Focus on long-term goals: Avoid getting caught up in short-term fluctuations and keep your mind focused on your long-term investment goals.
Choose the right contract
When trading derivatives on the expiry date, choosing the right contract plays an important role in ensuring that your investment strategy is implemented effectively. Before making a decision, it is necessary to consider some important factors such as the underlying asset you are interested in, the expiry time, the closing price of the contract, liquidity, and market analysis.
The underlying asset is a fundamental factor in your choice. It is important to identify an asset that you are knowledgeable about and interested in. Maturity also plays an important role, with a near-term contract suitable for short-term investments and a contract with a longer maturity if you are aiming for a long-term investment.
The closing price of the contract is the factor that determines your profit/loss on the expiry date. It is important that the closing price accurately reflects the current situation of the underlying market. Liquidity is also an important factor that affects your trading ability.
Ultimately, using technical and fundamental analysis helps assess market conditions and aid in decision making. Choosing the right contract requires diligence and strategic thinking to ensure you are making smart and effective trades.
3. Impact of derivative maturity on the underlying market
In derivative maturity date, the impact from the underlying market can be a decisive factor in the development of the derivatives market. The underlying market, where the underlying assets such as stocks are traded, can influence the derivatives market in the following ways:
- Base price fluctuation: The underlying price can fluctuate widely on the derivative expiry date, and this often creates similar volatility in the related derivative market. For example, if a major stock in the underlying index experiences significant volatility, it can lead to similar volatility in the derivative contract price.
- Big Moves Before Closing: Prior to the close of the underlying market, large investors often make significant trades that influence the closing price. This can put pressure on the underlying price and thus affect the price of derivative contracts.
- Create index order: Large investors have the ability to place large buy or sell orders in the underlying market, especially for stocks that are important to the index. This can affect the underlying price and thus create a ripple effect on the derivatives market.
- Arbitrage phenomenon: Professional investors can take advantage of the difference between the price of the derivative contract and the price of the underlying asset to make a profit. On the expiration date, they can adjust their positions in the derivative market to take advantage of this opportunity.
- Impact on closing price: Derivatives markets typically use the closing price of the underlying asset to calculate the contract settlement price. If there is a large buying or selling pressure before the closing time in the underlying market, it can create volatility in the closing price, and thus affect the settlement price of the derivative contract.
4. What are the future derivative maturity adjustments?
Derivative maturity is not only a time of opportunity but also a time of challenge for investors. Applying risk management principles not only helps protect investment capital but also lays the foundation for success and stability in a volatile financial environment. Remember, understanding and managing risk is the key to investing success.
HVA Investors are advised to monitor the changes and improvements in the rules and regulations related to the maturity date as an important part of participating in the derivatives market. Market regulators, such as the State Securities Commission, regularly introduce changes to improve transparency and fairness in the derivatives maturity process.
This is especially important because the day derivatives maturity carries both opportunities and risks. Therefore, having a specific and in-depth plan, along with a deep understanding of the market, is important to ensure that your investment process is carried out wisely and safely. This helps you face difficult situations and take advantage of opportunities that arise on the maturity date in the most effective way.
Source: Onstocks
