In regard to the Cboe’s large-sized, cash-settled MSCI EAFE® and MSCI Emerging Markets Index options, Cboe recently issued two notices with changes for the index options:
Here are key excerpts from the July 2018 notice:
KEY FEATURES OF MXEF & MXEA OPTIONS
Key features of the global index options include —
- Efficiency with large contract size – cash-settled options on the MSCI indexes have a $100 multiplier and a notional size that is about 26 times larger than the options on the EFA and EEM ETFs.
- Simplicity – achieve broad-market exposure in one trade, as options on MSCI options offer investors tools with the potential to adjust exposure to the global markets at a fraction of the cost of buying individual stocks and ETFs
- Cash settlement – with no unwanted delivery of stocks or ETFs
- Predetermined risk for option buyers – index option purchasers risk only the premium they pay for the option. The risk is both known and limited.
- European-style exercise – which protects option sellers against assignment prior to expiration (so-called “early assignment”)
GAUGES OF EXPECTED VOLATILITY – VXEEM, VXEFA AND VIX INDEXES
Investors who wish to explore intraday and long term gauges of expected volatility for global equities can analyze the VXEEM, VXEFA and VIX volatility indexes. So far in 2018, the approximate average daily closing values were 20.6 for VXEEM, 15.9 for VIX, and 13.4 for VXEFA.
VOLATILITY SKEW FOR MXEA AND MXEF OPTIONS
The two volatility skew charts below show that Bloomberg’s 30-day implied volatility estimates fell from February 5 to July 30 for both the MXEA and MXEF index options at many strike prices. For example, the at-the-money 30-day implied volatility for MXEF options fell from 20.5 on February 5 to 9.2 on July 30 for the MXEA options.
To learn more about ways in which Cboe’s options on the MSCI MXEA and MXEF indexes can be used in global portfolio management, please visit these links –