The options give exposure to the exchange’s main index in response to growing institutional and retail demand for instruments able to respond quickly to market fluctuations. BEST EXECUTION spoke to Euronext group head of institutional derivatives Charlotte Alliot to learn more.
Daily options help investors to execute short-term trading strategies, which in turn brings more flexibility when it comes to navigating turbulent markets. Although other exchanges (such as Eurex) also offer daily options, Euronext was in fact the first exchange in Europe to launch the instruments, starting with the Amsterdam Exchange Index (AEX) index back in 2008.
“The AEX options saw very strong activity from retail investors, and it has brought a lot of innovation to the Dutch market,” explained Charlotte Alliot, group head of institutional derivatives at Euronext. “The trend is now becoming bigger and bigger, and it’s being driven by the market. In fact, I was positively surprised because we had expected initial demand to come from individual investors but actually, when talking to banks and to execution desks, adoption is so wide now that it’s coming directly from institutional investors as well.”
With the expansion onto the CAC 40, investors can now choose from a full range of maturities on French blue-chip stocks in the central order book, going from daily to five years. The options are cash-settled at the end of each trading day.
The products help investors to react quickly to market movements, as well as giving them targeted exposure around key events. They also offer high theta and gamma, utilising time decay and increased sensitivity to small price movements, while their lower time value can make them more cost-effective compared to longer-dated alternatives.
“We’ve really seen liquidity build in these products,” said Alliot. “Strategies are combining these short-dated options with monthly contracts, for example, and it’s creating a positive cycle of liquidity that is bringing in more and more investors.”
Also of interest is the local nature of the product. “It’s about aggregation of local markets, where we have very strong links with the local investor communities. We believe that we’re creating a new trading opportunity for these local ecosystems, which will have knock-on benefits across the market.
© Markets Media 2024.
