- Margin rule change aims to enhance capital efficiencies when
writing cash-settled index options against ETFs based on the same
index
- Enables traders to use cash-settled index options as an
efficient trading and hedging tool to manage positions at a
potentially lower cost
- Cboe's suite of index options offer cash-settlement,
European-style exercise and potential tax benefits
CHICAGO, March 20,
2024 /PRNewswire/ -- Cboe Global Markets, Inc. (Cboe:
CBOE), the world's leading derivatives and securities exchange
network, today announced the introduction of enhanced margin
treatment for cash-settled index options. Cboe's margin relief
rule aims to provide greater capital efficiencies for traders and
reflects its ongoing commitment to advocating for smart and
responsive market structure enhancements that meet the evolving
needs of its customers.
Cboe's margin relief rule offers enhanced margin treatment when
writing, or selling, a cash-settled index option in a margin
account against an exchange-traded fund (ETF) that is based on
the same underlying index. In the same way an investor can write an
equity call option while holding a long position in the underlying
security (i.e., a "covered" call), Cboe's rule change allows for
writing of index options in a similar manner. An investor, for
instance, could write a call option on the Mini S&P 500 Index
option (XSP) while having a long position in a corresponding ETF
such as the iShares Core S&P 500 ETF (IVV), SPDR® S&P 500®
ETF Trust (SPY), or Vanguard S&P 500 ETF (VOO) to potentially
enhance returns on their ETF.
Under the prior framework, there was no margin requirement for a
short call that qualified as "covered." Given the similar
risk/return profiles of writing an index call option (e.g., XSP)
against a long ETF position (e.g., IVV, SPY, VOO) vs. writing a
covered call, Cboe's rule now treats these index options as
protected for margin purposes – and not subject to uncovered option
margin requirements. This rule change is expected to enable traders
to adopt overwriting options strategies at a potentially lower cost
than is possible under the existing margin requirement, ultimately
creating a more capital-efficient and flexible trading
experience.
"Our margin rule represents an exciting development for the
options market and provides an additional way for investors to
incorporate cash-settled index options in their trading
strategies," said Catherine Clay,
Head of Global Derivatives at Cboe Global Markets. "Index options
can be an excellent trading and hedging tool, offering many unique
advantages over existing alternatives. For investors with ETF
positions, index options allow them to overwrite long positions
with the ease of cash settlement, while potentially mitigating
risks of early exercise and capitalizing on potential tax
advantages. Our margin relief rule may also potentially free up
capital for investors – which means more resources to allocate to
other market opportunities to optimize their trading outcomes."
Cboe is the exclusive home for S&P Dow Jones, FTSE Russell
and MSCI index options, along with options on the Cboe Volatility
Index (VIX). Cboe's proprietary suite of index options are
cash-settled (no transfer of the actual underlying asset; instead,
any profit or loss is exchanged in cash upon expiration) and
European-style (options can only be exercised at expiration,
removing call-away risk and facilitating easier management of
positions.)
Cboe's rule applies to any index call or put option written
against a position in a non-leveraged index mutual fund or
non-leveraged ETF that is based on the same index underlying the
index option and held in the same margin account. FINRA recently
adopted a similar margin relief rule which conforms to Cboe's rule.
To learn more about overwriting strategies with Cboe's index
options, visit our website.
About Cboe Global Markets
Cboe Global Markets
(Cboe: CBOE), the world's leading
derivatives and securities exchange network, delivers cutting-edge
trading, clearing and investment solutions to people around the
world. Cboe provides trading solutions and products in
multiple asset classes, including equities, derivatives,
FX, and digital assets, across North America, Europe and Asia
Pacific. Above all, we are committed to building a trusted,
inclusive global marketplace that enables people to pursue a
sustainable financial future. To learn more about the Exchange for
the World Stage, visit
www.cboe.com.
Cboe Media Contacts
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Cboe Analyst Contact
|
Angela Tu
|
Tim Cave
|
|
Kenneth Hill, CFA
|
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+1-646-856-8734
|
+44 (0)
7593-506-719
|
|
+1-312-786-7559
|
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atu@cboe.com
|
tcave@cboe.com
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khill@cboe.com
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CBOE-OE
CBOE-O
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SOURCE Cboe Global Markets, Inc.