Five Major Issues You Need To Pay Attention To In Starting Stock Option Trading In China

The trial of stock options trading launched on Monday (February 9th) marked a new stage of development in China's stock market. The first stock derivatives 50ETF option contract approved by China's regulators since the launch of stock index futures in 2010 has been listed on the Shanghai Stock Exchange on Monday. The contract is marked by SSE 50ETF, which tracks the performance of some of China's largest companies.

Foreign media interviewed the market participants and analysts on the first day's trading forecast, the impact on the spot market and the initial trading strategy.

　　 Initial trading strategy

Song Qihu, assistant general manager of Shanxi securities asset management headquarters, said the most important hedging strategy is to hold 50ETF stock and sell call options or put options.

Xu Xiaoyun, an analyst with the wealth management center of the state securities company, said that selling a subscription option could reduce the cost of holding a position; buying a put option could hedge the risk of a falling share.

Zhao Xiaohui, an analyst at Guotai Junan Financial Derivatives Research Institute, points out that the first class investors can only make hedging, which makes the function of option insurance more prominent.

According to media reports, China has set three levels of competence for option investors, and can be obtained through corresponding examinations.

　　 day one Transaction prediction

Zhao Xiaohui predicted that the first day of trading or light, the PK between market makers may be even greater.

Haitong futures Innovation Group Director Ren Jun Xing believes that under the strict control of regulators, the listing of ETF options should not be overhyped.

At the close of the morning, the most active trading was the 2.2 yuan in the exercise price and the contract due in March, with a turnover of about 353 contracts.

　　 Impact on spot market

Zhao Xiaohui said overseas experience shows that the volatility of the stock market will increase, but the situation in China is different. Fewer investors, higher margin ratio and higher capital cost.

Song Qihu said that since the launch of stock index futures in 2010, the investor threshold for Shanghai 50ETF options is the highest in China.

Song Qihu said that the stock market opened up and closed down after lowering the benchmark, indicating that the overall atmosphere of the market was cautious. Therefore, the introduction of options has limited effect on the Shanghai Stock Index 50 constituent stocks.

　　 Investor group

Xu Xiaoyun predicts that there will be more opening accounts in developed areas, and the total number of accounts can be estimated to reach thousands. Investors who have opened accounts may have overseas investment experience, or in the past, warrants trading profits are good, or they want to do hedging.

　　 Ren Jun Xing It is pointed out that among institutional investors, hedge funds, brokerages and private equity funds are more interested in participating in options trading.

　　 Prospect

Mr Ren said that China's options market has great potential for development from the experience of Korea and Taiwan.

Guotai Junan Securities report data show that the Korean stock index option launched the first year, the transaction reached about 4500000 contracts, the next year increased by more than 6 times, more than 32 million.

Ren Jun hang expects that with the full spread of options products, Haitong futures's profit is expected to double or even three times the current level in the future.

Song Qihu said that no matter what investors think of the spot market, options can provide corresponding trading strategies, and options will greatly enrich investors' investment strategies.

　　 Investor New tools for risk management

China launched its first stock option deal, giving investors in the world's largest volatile stock market a new tool to manage risks.

Haitong futures expects the stock option trading pilot will eventually expand to the stock index and stocks. Since 2010, China's stock index futures market has increased by nearly 10 times.

With the Shanghai Composite Index in the global stock market performance ranking from last year's positive number one to the countdown of this year, the introduction of stock options will facilitate institutional investors in the market to better manage volatility.

"The launch of the first option product is a big step for China," said Winner Lee, Asia strategist at BNP Paribas in Paris, Hongkong. "We can see the ambition of Chinese leaders to let mainland stocks go international and gradually build their own derivatives market."

Before launching the option trading, China has carried out a series of reforms on the stock market structure in the past five years, and has introduced stock index futures, margin trading and stock market interconnection and other measures.

Shanghai and Hong Kong, launched in November last year, have opened Renminbi denominated A shares to foreign investors with unprecedented strength.

Freddy Lim, global head of derivatives strategy in Singapore, Nomura, said: "the key is to attract large institutional investors to advance to the stock option stage. The leading products such as Shanghai 50ETF and options must first develop to a certain depth."