From Monday on the platform of Eurex Deutsche Börse AG it will be possible to enter into contracts for the Euro Stoxx 50 index, which tracks the prices of the 50 largest European stock companies, which expire every weekday. So-called zero-day options (ODTEs) were first introduced in America last year for the S&P 500, and from now on, European investors can also trade the leading European index in a similar way on every trading day, according to Bloomberg. .
The emergence of zero-day options caused a tremendous explosion in the market for derivative products, the demand for them from retail and institutional investors was huge, on the one hand, for speculative purposes, and on the other hand, for hedging purposes. In August, for example, according to Nomura Securities International, ODTE trades accounted for 55 percent of all options trades on the S&P 500. The turnover of the new derivative product has now grown to such an extent that there have been increasing warnings over the past month that it could also pose a threat. for market stability.
Many people in Europe hope that the introduction of new contracts can breathe life into the rather stagnant derivatives trading. Over the past decade and a half, European stock indices have chronically underperformed their US counterparts, and trading volume has also stagnated. In this environment, a new product must perform exceptionally well to generate hype.
There is no pent-up demand for this. The S&P 500 index is a completely different story: everyone in the world is trying to predict what will happen to stocks in the world using the big US index and its derivatives.
said Kieran Diamond, derivatives strategist at UBS Group AG in London.
Euro Stoxx 50 options averaged $45 billion a day in nominal trading volume over the past month, compared to $1.3 trillion ($1.3 trillion) in S&P 500 options, according to UBS.
While the new maturities are unlikely to create a buzz like the US one, according to Patrick Bonuvry, head of European index derivatives trading at Optiver BV, they could increase trading volume and professional traders could become their main users.
“The clear trend around the world is that investors are increasingly favoring short-term options. Day options allow you to hedge very specific risks, such as ECB events, that could not previously be considered with the same level of detail,” said Bonuvry.
Earlier, Eurex said that the introduction of new contracts was a reaction to the requirements of the institutions. In addition to the introduction of a daily expiration date, settlement of derivatives transactions will be rescheduled from today’s noon to 17:30 CET, close to the time the stock exchange closes. This gives you more options to react to the events of the day.
With all this, it is unlikely that daily expiration of options will become as popular as in America, in Europe, because the share of retail investors in the market here is not as high as on the other side of the ocean. This On Wall Street, a significant portion of daily options trading is carried out by small investors.
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