Kospi's Nightmare Settle: Aug 13, '09

S

Sell 'em

This question relates to the Kospi 200 index options for Aug expiry, which expired yesterday at the close 14:50 Korea time.

I got completely reamed ... wondering if someone could shed some light, beyond the obvious.

The gist:

Stock and stock index options ceased trading at 14:50 local time. The index appeared to close around 204.55, and futures were trading near that level.

Yet the Korean Exchange has set the settle price at 202.46, an almost 1% fall in a rising market.

WTF happened here?

Pls keep the snarky comments to a minimum guys, I'm looking for real understanding.
 
Quote from Sell 'em:

This question relates to the Kospi 200 index options for Aug expiry, which expired yesterday at the close 14:50 Korea time.

I got completely reamed ... wondering if someone could shed some light, beyond the obvious.

The gist:

Stock and stock index options ceased trading at 14:50 local time. The index appeared to close around 204.55, and futures were trading near that level.

Yet the Korean Exchange has set the settle price at 202.46, an almost 1% fall in a rising market.

WTF happened here?

Pls keep the snarky comments to a minimum guys, I'm looking for real understanding.
More...

Stocks do close at 14:50 local time. However, between 14:50 and 15:00 you can submit orders which will print at 15:00. (on expiration you have to pre-disclose your size by 14:20) . On expiry, those orders can move the market significantly. The large orders on expiration in theory are to close down basket positions put on against the front month future.

For index options you can also place limit order after 15:00 to participate on the final print.
 
Quote from def:

Stocks do close at 14:50 local time. However, between 14:50 and 15:00 you can submit orders which will print at 15:00. (on expiration you have to pre-disclose your size by 14:20) . On expiry, those orders can move the market significantly. The large orders on expiration in theory are to close down basket positions put on against the front month future.

For index options you can also place limit order after 15:00 to participate on the final print.
More...

Thank you very much def - I'm a long-time customer and I do appreciate it. A few follow on questions, if I may:

A. On any given day stock orders can be submitted between 14:50 and 15:00, with all of those orders matched at the same 15:00 price?

B. On any given day one can submit index option limit orders only AFTER 15:00, for execution ONLY at the settle price of that option? How long after 15:00 can such an order be placed?

For your amusement, on Thur I was long Aug puts all day, certain we'd trade down to 202.5. Needless to say, got it handed to me, only to be flabbergasted by the settle at 202.46. So, so painful, but hopefully a learning experience I can capitalize on in the future.
 
Quote from Sell 'em:

Thank you very much def - I'm a long-time customer and I do appreciate it. A few follow on questions, if I may:

A. On any given day stock orders can be submitted between 14:50 and 15:00, with all of those orders matched at the same 15:00 price

B. On any given day one can submit index option limit orders only AFTER 15:00, for execution ONLY at the settle price of that option? How long after 15:00 can such an order be placed?

For your amusement, on Thur I was long Aug puts all day, certain we'd trade down to 202.5. Needless to say, got it handed to me, only to be flabbergasted by the settle at 202.46. So, so painful, but hopefully a learning experience I can capitalize on in the future.
More...

a: yes but on expiration you need to declare your intentions beforehand.

b: 15:10

c: expiry can be hairy so if that kind of risk gives you heart palpitations, I'd recommend trading the second month options on expiry
 
Quote from def:

c: expiry can be hairy so if that kind of risk gives you heart palpitations, I'd recommend trading the second month options on expiry
More...

Yes ... I was looking at the SEP options charts when I saw your reply. Normally expiration week is great for me, but I generally avoid the last 30 minutes of trade, so haven't needed to focus on settlement.

Still, I have entered/exited options positions near the close, not realizing I could have waited until 15:00.

This lesson is good, well worth the loss.

Thanks again.
 
About two years back they closed the spot on expiry 11% away from where it was trading!!

But normally it closes within +/- 1%

Its a real pain you can never tell which way it will go, except seems that for an options only close out tends to move down for a futures and options close out tends to close up.
 
Quote from def:


For index options you can also place limit order after 15:00 to participate on the final print.
More...

Def can you do this on IB? because I have never succeeded or does it only apply on an expiration day?
 
Quote from dont:

About two years back they closed the spot on expiry 11% away from where it was trading!!

But normally it closes within +/- 1%

Its a real pain you can never tell which way it will go, except seems that for an options only close out tends to move down for a futures and options close out tends to close up.
More...

Eleven percent sounds really wild.

If it is as you say, that options-only expirations tend to close down, while futures expry's tend to close up, this would suggest that expirations are heavily gamed by institutions. This is because big institutions are primarily long both futures and puts. Likely the $$ they earn on the derivatives positions more than offsets the costs of using stock trades after the close to push prices where they are needed.

Interesting indeed.

Thanks.
 
don't hold me to that 11% but I do remember it being big >6%. I posted about it but no-one replied.

I went into the close out with some heavily deep itm calls, so to close them out I bought puts and went long the futures.

So at the close I sell the futures for about 204 and the synthetic closes out at 202.46.

Don't hold your breath though what you gain on one close out you piss away on the next. :D
 
Anyone know where I can get the Thur settlement prices for the SEP options chain, short of calling the exchange? I'd like to see how they settled given the crazy index settle. If I look at Friday price changes from IB, does this accurately indicate Thur settle prices as such?

SEP Kospi200 Puts chain Thur settle:

205.0 5.45
202.5 4.60
200.0 3.35

Those settle prices don't appear to reflect an index settle at 202.46. Hmmm ...
 
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