Options on FTSE China 50 Mini Index (FXTM) www.cboe.com/FXTM

  • Prices for 3 VIX
    Futures are above

Cboe Introduces Cash-settled Options on FTSE China 50 (FXTM) Mini- indexes - New Risk Management and Yield Enhancing Opportunities

Launching on March 29, 2016, market participants will have electronic and open outcry access to trade cash-settled options on the FTSE 100 and FTSE China 50 Mini-indexes exclusively listed in the U.S. on Cboe.

The FTSE China 50 Index (based on XINOI) is a free-float capitalization weighted index based on 50 of the largest and most liquid Chinese stocks (H Shares, Red Chips, and P Chips) listed and traded on the Stock Exchange of Hong Kong (SEHK), and are without restrictions to international investors.

Contract Specifications

Options on FTSE China 50 Mini-index (FXTM) - The notional contract size is based on (1/100th) of the FTSE China Index XINOI (approx. 14,500). FXTM will ordinarily cease trading on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated. FXTM will be AM-settled on 3rd Fridays using the exercise settlement value FZS.

Key Features of FXTM options:

  • U.S. Dollar Denominated
  • Cash-settlement - No delivery of stocks or ETFs.
  • No Early Exercise - European style and AM settlement only on the Expiration Date.
  • Price and Quote Transparency - Competitive Auction Markets.
  • Clearance of Transactions - Options Clearing Corporation is the counterparty to each trade.
  • Margin - Cboe Regulatory Circular RG15-183 notes that Cboe rules allow a short position in a cash-settled-index option established and carried in a margin account to receive covered margin treatment, if the short option position is offset in the same account by an equivalent position in an index-tracking ETF that is based on the same index that underlies the short option(s).

    In order to receive covered margin treatment, the market value of the offsetting ETF position must be equivalent or exceed the current aggregate index value of the option being covered. One should note that not all ETFs are managed so as to maintain a share price that is a constant fraction (e.g., 1/10 th, 1/100 th, 1/1,000 th, etc.) of the index being tracked.
  • Tax Treatment - under section 1256 of the Tax Code, profit and loss on transactions in certain exchange-traded options, including FXTM options, are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the Tax Code.*
* Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations.

Updated Price Charts

Index Performance - Price Change and Volatility

Price performance and volatility on blue chip stocks trading in the U.S., U.K., and China have distinct characteristics, which may provide interesting option trading opportunities.

Index correlations
S&P 500
FTSE 100
FTSE China 50
S&P 500
FTSE 100
FTSE China 50

Over the past year, the average monthly changes (%) were greater in the FTSE 100 and FTSE China 50 Indexes than the S&P 500 Index. As seen in the chart below, the FTSE China 50 Index monthly changes were +/- 1.00% or more in all months whereas the FTSE 100 and S&P 500 Indexes were +/- 1.00% in 11 out of 14 months.

The 30 Day Realized Volatility during the same time period highlights that the FTSE China 50 Index had a higher volatility regime. Alternatively, the FTSE 100 Index volatility was slightly greater than the S&P 500 Index on a daily basis.

30 Day Realized Volatility (1/2/2015 - 3/18/2016)

FTSE China 50
FTSE 100
S&P 500

New Trading Opportunities in Cash-settled Options on UKXM and FXTM Mini-indexes

  • Volatility trading strategies, e.g., Butterflies, Iron Condors, Vertical Call, and/or Put spreads.
  • BuyWrite between FXTM and a comparable ETF iShares China Large-cap (FXI) for potential yield enhancement and improved risk adjusted returns.
  • PutWrites on a cash secured basis for potentially improved risk adjusted returns.
  • Spreading opportunities between FXTM options and E-mini FTSE China 50 futures trading on CME.
  • Relative value trading between FXTM and options on iShares China Large Cap. ETF (FXI).
  • Relative value trading between FXTM options and options on Hang Seng Index trading on SEHK.

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