- 7 new US stock underlyings for Daily Leverage Certificates (DLCs) issued by Societe Generale are now available for local investors. These DLCs provide investors with 3x long or short exposure to the US Magnificent Seven stocks – Tesla, Nvidia, Alphabet, Apple, Amazon.com, Microsoft and Meta Platforms.
- Following the US elections, investors have priced in lower corporate taxes and deregulation under the Trump 2.0 administration. All long DLCs on the Magnificent Seven stocks posted positive returns for the period 5 to 11 Nov (post US elections). Tesla 3x Long DLC (TSYW) was the top performer, gaining 148% for the period. Tesla shares rallied 35% for the period, reclaiming a US$1 trillion market cap for the first time since Sep 2022.
- DLCs are financial instruments issued by a third-party financial institutionand traded on SGX-ST, allowing investors to gain fixed leveraged exposure of the daily performance of the underlying assets such as market indices and single stocks. If the underlying asset moves by 1% from its closing price of the previous trading day, the value of a 3x DLC will move by 3%, and that of a 7x DLC will move by 7%. This comes without the features impacting pricing for options such as implied volatility, time decay or margin calls.
On 4 Oct, SGX introduced new US stock underlyings for Daily Leverage Certificates (DLCs) issued by Societe Generale. These DLCs provide investors with three times long or short exposure to the US Magnificent Seven stocks, including Tesla, Nvidia, Alphabet, Apple, Amazon.com, Microsoft and Meta Platforms.
US stock DLCs come with several features that can enhance trading strategies. A key benefit is the ability to short without margin, enabling traders to take short positions without the usual margin requirements, which is particularly useful for hedging against market downturns. Additionally, investors in Asia can capitalize on market-moving events such as earnings announcements, election results and data releases that occur before US market opens, and react swiftly to critical news. Furthermore, investors can gain leveraged exposure to US stocks and trade conveniently in SGD.
Following the US elections and a 25-basis point rate cut by the Federal Reserve, all long DLCs on the Magnificent Seven stocks posted positive returns for the holding period of 5 to 11 Nov, as investors priced in lower corporate taxes and deregulation in the US under the Trump 2.0 administration.
*Returns are calculated based on close-to-close price change, using the daily intrinsic close available on the issuer’s website. Actual returns may vary depending on entry/exit points.
Trading Strategies for US DLCs
(1) Trade on intraday volatility during Asian hours
Recent key events, such as Tesla’s Robotaxi announcement and the momentum following the US elections, have led to significant price fluctuations in Tesla during Asian hours. Tesla DLCs’ price amplitude ranged from 20% to 36% on these days. During the Robotaxi event on 11 Oct, both long and short DLCs were utilized by investors to profit from market trends, achieving a combined turnover of S$0.5 million by midday.
During Tesla’s third-quarter earnings announcement, potential strategies for investors included:
- Before Earnings Release (23 Oct): Anticipating a price increase, investors might have entered the Tesla 3x Long DLC (TSYW) on 23 Oct during Asia trading hours, prior to earnings release. After the release, Tesla shares rose 12% in US after hours trading on 23 Oct and TSYW opened over 30% higher on 24 Oct.
- After Earnings Release (24 Oct): Investors holding TSYW from 23 Oct could either take profit or continue holding a long position if their view is bullish. Investors expecting further gains due to strong earnings momentum may also enter new long positions. In this case, Tesla shares continued to climb during US trading hours to 22%, marking its largest single-day gain in 11 years. TSYW closed at $5.55 on 24 Oct, up 65% from 23 Oct.
(2) Swing trading to capitalise on short-term price movements
Following the US elections and a 25-basis point rate cut by the Federal Reserve, all long DLCs on the Magnificent Seven stocks posted positive returns for the holding period of 5 to 11 Nov.
Tesla 3x Long DLC (TSYW) emerged as the top performer, gaining 148% from S$4.865 on 5 Nov close to S$12.089 on 11 Nov close. Tesla shares rallied over 35% since the election, reaching their highest levels since April 2022. The underlying shares recorded 5 consecutive days of gains from 5 through to 11 Nov, with the 3x long DLC returning more than 3x the performance of the underlying due to positive compounding.
Top Traded US DLCs since launch
Top traded underlyings included Tesla, Nvidia and Alphabet, with Alphabet showing the highest long to short turnover ratio, indicating strong bullish sentiment after reporting strong cloud revenue during its third-quarter earnings release.
US Stock DLCs trade in board lot size of 100 units and are available for trading only during SGX-ST trading hours.
A Common question among investors: How do DLC prices move during Asia hours and does the airbag mechanism apply?
During Asia hours, US stock DLCs will track the derived spot price of US stocks quoted on alternative trading systems. Investors can visit the issuer’s DLC website (up to 15 minutes of delay) for derived spot prices during Asia hours. Do note that the Airbag mechanism may only be triggered during US hours when SGX is closed.
This means that there is a risk of significant or total loss overnight and investors will not be able to exit their DLC positions at that time. For a 3x leverage DLC to be completely wiped out overnight, the underlying US stock must experience an intraday drop (for Long DLCs) or rise (for Short DLCs) of ~33% during US trading hours.
For more information on DLCs, visit https://www.sgx.com/dlc.
Download DLC factsheets and FAQ document for the full suite of DLCs available on the SGX market and more about investor suitability, risks, as well as cost and fees involved.
