Bryan Perry

Invest Globally, Profit Locally

    Tweet This

Free Trading Guides

We can trade options on thousands of U.S. stocks, indexes and Exchange-Traded Funds (ETFs). But with America's growing interest in trading foreign stocks, how can an options trader take advantage of -- and profit in -- the international stock market?

One region receiving a lot of attention is Asia -- particularly China and India, which Wall Street also refers to as "Chindia." These emerging markets have caught the attention of many traders, both those who are bullish on continuing growth in these areas as well as bearish investors who want to be positioned for a global market sell-off.

Options traders are equipped to use calls to ride stocks to new highs and to buy puts to make a downside bet. But despite plenty of option trading opportunities in domestic stocks, options on foreign stocks might not be as easy to come by and they might end up costing you a pretty penny (or Euro, Yen, Yuan, etc).

Keep in mind that when you purchase stocks on overseas markets, such as the Shanghai Composite or the Hang Seng, you are buying stocks in the local currency. Although your account will be debited in dollars, ultimately those dollars must be converted and given exchange and commission fees.

Also, given that options premiums are based on the price of the underlying stock, volatility and time, among other factors, the premiums for foreign options can become inherently more expensive.

It's also important to note that, after the host of U.S. corporate scandals, the Sarbanes-Oxley Act came into play to keep domestic companies honest and investors in the clear. But, those accounting regulations only apply to U.S. companies, and stocks that are listed on foreign exchanges are not obliged (or even expected) to follow the same regulations. In China, where many companies are government outfits, this is especially true.

Yet, no one is arguing that there is the potential for profit by the rise or decline of today's "hot" stocks, but you can reduce your risk by playing foreign stocks by buying options on them in the domestic markets.