New Cboe Weeklys Options on MSCI EAFE and EM Indexes Launched on September 6 

Cboe’s MSCI EAFE® Index (ticker MXEA) and MSCI Emerging Markets Index (ticker MXEF) options can provide investors with large-sized, cash-settled index tools to help efficiently manage global equity risk.  Cboe has made several enhancements to its MSCI product suite, including today’s launch of Friday-expiring Weeklys options.     

NEW DEVELOPMENTS FOR MXEA AND MXEF OPTIONS

NEW WEEKLYS OPTIONS. Today (September 6) Cboe Options Exchange launched Friday-Expiring Weeklys options on the MSCI EAFE Index and MSCI Emerging Markets Index. So, this means that for September there are now three different Friday expirations – the standard monthly expiration on September 21, along with the two new Weeklys options expirations on September 14 and September 28. Click on this recent Cboe notice for more details.  Weeklys options can provide opportunities for investors to implement more targeted buying, selling or spreading strategies. Weeklys options may help investors efficiently take advantage of market events, such as earnings, government reports and Fed announcements.

NEW LEAD MARKET MAKER. On June 12, Cboe Options Exchange issued a notice stating that Susquehanna Securities was selected as the Lead Market Maker (LMM) in the Regular Trading Hours (RTH) session for the MXEA and MXEF index options.

NEW LAST DAY OF TRADING. The June 12 Cboe notice also stated that the last day of trading for an expiring series will be changed to the close of business on the last trading day (usually a Thursday) immediately prior to the expiration date.

GROWTH IN OPEN INTEREST.  From January 2017 to this month, the maximum intra-month open interest grew from 4,171 to 27,530 for MXEA options, and from 2,677 to 11,332 for MXEF options.

CHINA A-SHARES. After the posting of a 2017 blog, in June 2018 MSCI began partial inclusion of more than 220 China large-cap A-shares in the MSCI Emerging Markets Index. A-shares are the stocks of companies incorporated in mainland China, quoted in renminbi, and listed on exchanges in Shanghai and Shenzhen. Inclusion at a 5% initial weight could lead to approximately $22 billion of capital inflows into these stocks.

BARRON’S STRIKING PRICE.  The August 24 Striking Price column in Barron’s,  entitled “How to Catch an Emerging Market Rebound,” opined that stock investors may be fleeing emerging markets, but the options crowd is getting ready for a bounceback in emerging markets, and it offered some options trades to consider.

PRICE CHART SINCE 1970 FOR MXEA AND MXEF INDEXES

While both the MSCI EAFE (MXEA) and MSCI EM (MXEF) indexes each have grown more than ten-fold since their launch dates, prudent investors also might note that a decade ago the most severe drawdowns for these the total return versions of these indexes were: down 56.4% for the MXEA Index and down 62.7% for the MXEF Index. Certain index options strategies, such as covered calls, cash-secured puts, and protective puts, do have the potential to mitigate big losses in equity portfolios.  

MSCI price chart 1970 thru Sept 5 2018

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”).

MORE INFORMATION

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 –