I'm a frequent trader of SPYW, and I'm interested in learning how I can get my hands on something similar for foreign exchanges like SHCOMP and JPX. Can that be done with American brokers?
You will find similar products for other countries too, such as EWZ for Brazil.
FXI and EWZ even have a volatility index like the VIX (same methodology) calculated and published by CBOE (VXFXI, VXEWZ), which is always a sign of good options liquidity.
How can I buy options for foreign stock indices?
Indicies can be traded in three ways:
By buying and selling futures, or options on futures on the index. These are typically traded on a futures exchange.
By buying and selling Exchange Traded Funds (ETFs), or options on exchange traded funds. The ETFs are typically traded on a stock exchange (sometimes called a "cash market"). The options are usually traded on a separate exchange from the exchange that trades the ETFs - an options exchange.
There are also mutual funds, investment trusts and 'tracker' funds, but these do not have options unless they are exchange traded.
"Basket Trading" Stocks
By buying and selling the individual (component) stocks as a group, or options on those stocks that make up the index. Again, the options are usually traded on a separate exchange from the exchange that trades the stock, and also traded on the same stock and options exchanges as the ETFs.
Typically futures and stocks are regulated differently (for example in the US, the SEC (Securities & Exchange Commission) regulate trading of stocks and options on stocks, while the CFTC (Commodities & Futures Trading Commission) regulate trading on futures, including equity index futures).
Futures tend to be less heavily regulated and therefore more accessible overseas though they tend to be oriented more towards the institutional investor, so the contract sizes tend to be large and the settlement and pricing methodologies quote complicated. For example, futures don't require up-front payment, but instead require daily payments of the difference between the price paid and the market price of the underlying security.
Stocks and options on stocks tend to be more tightly regulated. For example the SEC prohibits US persons from buying options on stock from a non-SEC regulated options exchange (i.e. a foreign one).
Can that be done with American brokers?
If you are (1) a US person, and (2) you're buying stock or ETF options, then no you can only buy those that are listed on a US options exchange. The US futures markets tends to have listings for foreign indices but you should also be able to use a US broker to trade options on futures on European futures markets.
The Japanese Stock Market Index is the Nikkei 225.
Futures on the Nikkei 225 can be traded on CME (US) EUREX (Germany), SGX (Singapore) and many other countries; There are also dozens of ETFs that try to replicate the nikkei 225 or similar benchmarks.
The CME trades the FTSE China 50 Index.
When choosing an index, you should look at how heavily traded the index is compared with the others (higher volume is usually better, taking price into account); the fees associated with the product, and the availability and spread for options on that index.
How I can get my hands on something similar...?
- Identify the security that you wish to trade by reviewing the prospectus of potential candidates.
- Find out what exchange(s) the product is traded on (usually detailed in the prospectus).
- Look at the exchange's membership lists to see if your broker is there, or one that you wish to open an account with.
- Consult your broker to see if they have the features that you want and the costs of transactions, etc. are appropriate, and if the products are suitable for you. They may ask you disclose personal financial information to help them make that determination.
Also - options are a risky product. So risky that a US securities broker is not allowed to discuss a specific options strategy with you until you have read and understood the OCC Risks & Disclosures Document.
https://www.theocc.com/components/docs/riskstoc.pdf (down for maintenance at the time of writing) http://www.goldmansachs.com/disclaimer/salesandtrading/theooc-doc.pdf (secondary link)
These also relate to equity and ETF options. Additional and different risks apply to futures and futures options. In many cases you can lose more money than you started with(!)