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SPX options
- Thread starter FSU
- Start date
One other big reason to keep the AM expires around is because it does allow a perfect hedge for anyone actually holding the underlying basket of stocks. Worthless for me and probably most of us, but I'm guessing there's a market segment out there that finds that valuable.
The PM does that too. In fact the AM makes it harder because if you have single stock options, you have a one day mismatch.
I think the CBOE agrees that the PM is better which is why all new spx products are PM settled. The SPX options business is very polictical as interested parties want to protect their business interests. That's prob why Monthlies are AM
Not exactly because if you buy or sell the actual stocks you can't be sure it will be at the closing price, where as with the AM you can sell your basket for exactly what the AM index price will be. It's admittedly splitting hairs in this day and age, but for entities that have to exactly track an index it probably has value.The PM does that too. In fact the AM makes it harder because if you have single stock options, you have a one day mismatch.
I think the CBOE agrees that the PM is better which is why all new spx products are PM settled. The SPX options business is very polictical as interested parties want to protect their business interests. That's prob why Monthlies are AM
Just to be clear, I completely agree that this is a great change and for me the AM settles are worthless.
You can buy and sell your stocks on the closing price. You can put market on close orders for everything on their primary exchanges and get the actual print that will be used for the calculation.
You can do the same for the open as well.
Further, there is a vibrant Exchange for Physical market.
I think they should move both futures and options to PM close. It's probably one of the biggest reasons the SPY has grown in volume so much.
You can do the same for the open as well.
Further, there is a vibrant Exchange for Physical market.
I think they should move both futures and options to PM close. It's probably one of the biggest reasons the SPY has grown in volume so much.
Not exactly because if you buy or sell the actual stocks you can't be sure it will be at the closing price, where as with the AM you can sell your basket for exactly what the AM index price will be. It's admittedly splitting hairs in this day and age, but for entities that have to exactly track an index it probably has value.
Just to be clear, I completely agree that this is a great change and for me the AM settles are worthless.
quote of the day:
"a good craftsman never blames his tools"
Trading is a very hard craft and I'm painfully aware of my imperfections. But the topic of this discussion is not my performance or abilities but the tools we are using.
Unlike the black and white truths of fables, the truths of trading are rather gray. Sometimes, as in this situation, there is enough blame to go around.
If the SPX series were perfect tools for traders, CBOE would not have made any changes to the options series.
There are 3 separate topics being discussed:
AM/PM. PM is probably more reasonable as long as they do a consistent (e.g. move the VIX settles etc) and gradual migration. One thing that AM allows for is a bit of slop in cases when you are pinned, since the market is open after delivery. One important quirk - the European traders will be unhappy with a PM expiration (staying at the office till 10-11 pm on a Friday night to clean up your expiration is no fun). I can look up what fraction of volume is European accounts, it might be significant.
The pit. The pit is on the way out as is and absolutely has to go. The upstairs MMs should get an electronic RFQ system and the ability to to cross and print via a give-up mechanism. This will keep the tied market going and institutional clients happy.
The spreads. I doubt we will see them much tighter given the players.
AM/PM. PM is probably more reasonable as long as they do a consistent (e.g. move the VIX settles etc) and gradual migration. One thing that AM allows for is a bit of slop in cases when you are pinned, since the market is open after delivery. One important quirk - the European traders will be unhappy with a PM expiration (staying at the office till 10-11 pm on a Friday night to clean up your expiration is no fun). I can look up what fraction of volume is European accounts, it might be significant.
The pit. The pit is on the way out as is and absolutely has to go. The upstairs MMs should get an electronic RFQ system and the ability to to cross and print via a give-up mechanism. This will keep the tied market going and institutional clients happy.
The spreads. I doubt we will see them much tighter given the players.
Both. I'd also say because there is very little retail participation to help electronic flow.Why do you doubt the spreads won't narrow even if everything becomes electronic? Is it because the spreads are already as narrow as they can get for large volume orders? Or is it because SPX is proprietary? Both?
Both. I'd also say because there is very little retail participation to help electronic flow.
Where are all the cost savings going after you kick the traders off the SPX pit and make trading electronic? The evidence over the last decade seems to point in the opposite direction to your forecast.
Getting the market makers out of the pits and trading electronically has significantly reduced bid/ask spreads and commissions in every single market. See article: http://openmarkets.cmegroup.com/5168/electronic-options-trading-on-the-rise
As SPX catches up with where the rest of the industry is going, some of cost savings from electronic trading would go to narrowing of the options spreads for institutions.