FACULTY OF BUSINESS AND ECONOMICS ACADEMIC YEAR 2011-2012 TRADING OF STOCK OPTIONS; COMPARISON WITH FOREIGN COUNTRIES Master thesis presented to obtain the degree of Master of Science in Applied Economics written by: Manu Uylenbroeck Eline Van Nevel under the surveillance of Dr. Dries Heyman FACULTY OF BUSINESS AND ECONOMICS ACADEMIC YEAR 2011-2012 TRADING OF STOCK OPTIONS; COMPARISON WITH FOREIGN COUNTRIES Master thesis presented to obtain the degree of Master of Science in Applied Economics written by: Manu Uylenbroeck Eline Van Nevel under the surveillance of Dr. Dries Heyman Undersigned, Manu Uylenbroeck and Eline Van Nevel, hereby confirm that the following thesis may only be consulted and photocopied after written permission of the authors. When quoting, the title and the authors of the thesis should always be mentioned. PRELIMINARY WORD At the start of this paper, it is our pleasure to express a word of gratitude to our promoter, Dr. Dries Heyman, who has contributed to the success of this paper by giving support, evaluation and advice the entire way through. Further, we would like to thank our parents, who gave us the opportunity to study economics and who supported and guided us during the length of our university career. We also would very much like to thank all the people who took the time to read through our paper and gave their opinions on it. The mistakes that remain are our fault and our fault alone. I INDEX Preliminary word ........................................................................................................................................... I Index ............................................................................................................................................................. II Used Abbreviations ..................................................................................................................................... IV List of Tables ................................................................................................................................................. V List of Figures .............................................................................................................................................. VII Introduction .................................................................................................................................................. 1 Study of the literature .................................................................................................................................. 2 Section 1: Accessibility of stock option markets for private persons .......................................................... 7 1. General ................................................................................................................................................. 7 1.1 Online discount brokers ................................................................................................................. 8 1.1.1 Keytrade .................................................................................................................................. 8 1.1.2 Binckbank .............................................................................................................................. 10 1.1.3 Fortuneo ................................................................................................................................ 13 1.1.4 Comparison ........................................................................................................................... 13 1.2 Traditional banks .......................................................................................................................... 13 1.2.1 ING ......................................................................................................................................... 13 1.2.2 KBC......................................................................................................................................... 14 1.2.3 BNP Paribas Fortis ................................................................................................................. 15 1.2.4 Dexia ...................................................................................................................................... 16 1.3 Conclusion .................................................................................................................................... 17 1.4 Access to the Belgian option market from foreign countries ...................................................... 17 Section 2: Comparing stock vs. option investors on several variables ....................................................... 19 2. General ............................................................................................................................................... 19 2.1 First set: Classification Variables .................................................................................................. 21 2.2 Second set: Advice used, time spent on analysis and use of strategies....................................... 23 2.3 Third set: Risk-behavior ................................................................................................................ 32 2.4 Fourth set: Personality: LOT-R-score ............................................................................................ 33 2.5 Conclusion .................................................................................................................................... 34 Section 3: Practical analysis of the effectiveness of option strategies for different bid-ask spreads ........ 35 3. General ............................................................................................................................................... 35 3.1 Bull Spread .................................................................................................................................... 38 3.1.1 BEL-20 .................................................................................................................................... 39 3.1.2 AEX ......................................................................................................................................... 40 3.1.2.a Both options are initially out-of-the-money. ................................................................. 40 3.1.2.b Both options are initially at-the-money ......................................................................... 41 II 3.1.2.c Both options are initially in-the-money .......................................................................... 42 3.1.3 Conclusions ............................................................................................................................ 43 3.2 Bear Spread .................................................................................................................................. 43 3.2.1 Bel-20 ..................................................................................................................................... 43 3.2.2 AEX ......................................................................................................................................... 45 3.2.2.a Both options are initially out-of-the-money .................................................................. 45 3.2.2.b Both options are initially at-the-money ......................................................................... 46 3.2.2.c Both options are initially in-the-money .......................................................................... 47 3.2.3 Conclusions ............................................................................................................................ 47 3.3 Straddle ........................................................................................................................................ 48 3.3.1 Bel-20 ..................................................................................................................................... 49 3.3.2 AEX ......................................................................................................................................... 50 3.3.3 Conclusions ............................................................................................................................ 51 3.4 Strangle ......................................................................................................................................... 51 3.4.1 Bel-20 ..................................................................................................................................... 51 3.4.2 AEX ......................................................................................................................................... 53 3.4.3 Conclusions ............................................................................................................................ 53 3.5 Conclusion .................................................................................................................................... 54 General conclusion ..................................................................................................................................... 55 Appendices ................................................................................................................................................... 1 Appendix A: Survey by Dr. Dries Heyman: Dutch Version ....................................................................... 1 Appendix