Cboe TO OFFER DAILY EXPIRIES FOR RUSSELL 2000 INDEX OPTIONS SUITE, BEGINNING JANUARY 8, 2024
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Insights
The introduction of Tuesday and Thursday expiries for Russell 2000 Index Weeklys (RUTW) and Mini-Russell 2000 Index Weeklys (MRUT) options by Cboe Global Markets indicates a strategic response to evolving market participant needs. This expansion enables more precise hedging and tactical trading, reflecting the growing complexity of investment strategies. The move could potentially increase trading volumes and liquidity for these products, which is beneficial for investors seeking to manage positions with greater flexibility. The growth in short-dated index options, as evidenced by the increase to 36% of total U.S. index options flow in 2023, underscores the market's appetite for these instruments.
From an economic perspective, this development may enhance the efficiency of the options market by providing more granular opportunities for price discovery, particularly in the small-cap segment. However, the increased frequency of expiries also necessitates a more diligent risk management approach from investors, as the shorter time frames could lead to more frequent adjustments in portfolio positions. Market makers and liquidity providers will need to adapt to the increased operational demands of supporting daily expiries.
The decision by Cboe to list additional weekly expirations for RUTW and MRUT options aligns with the broader industry trend towards more frequent and varied derivative expirations. This trend caters to the desire for more targeted trading strategies around market events, which has been a significant factor in the growth of the derivatives market. The Russell 2000 Index is a critical benchmark for U.S. small-cap stocks and these options provide a tool for investors to gain exposure or hedge against this segment.
It's important to note that European-style options, such as RUTW and MRUT, restrict investors to exercising the option only at expiration, as opposed to American-style options which can be exercised any time before expiry. The cash-settled nature of these options also eliminates the need for physical delivery of the underlying securities, simplifying the settlement process. The smaller contract size of MRUT options offers accessibility to a broader range of investors, potentially increasing participation in the small-cap market.
The expansion of the Russell 2000 Index options suite to include daily expiries could have macroeconomic implications by facilitating more dynamic capital allocation and risk management in the small-cap equity space. Small-cap companies are often seen as a growth engine for the economy and enhanced trading mechanisms may improve the flow of capital to this sector. However, the proliferation of short-dated options may also amplify market volatility, as positions can be adjusted more rapidly in response to economic news and events.
Additionally, the increase in average daily notional value traded for RUT options, up 39 percent from the prior year, reflects a significant uptick in market activity that could have broader implications for market liquidity and depth. As trading volumes continue to rise, this could lead to more robust price formation and potentially lower transaction costs for market participants, contributing positively to market efficiency.
- Cboe to list Tuesday and Thursday-expiries for Russell 2000 Index Weeklys® (RUTW) options and Mini-Russell 2000 Index Weeklys (MRUT) options
- New listings will expand product suite to offer expirations every trading day of the week
- Reflects growing investor demand for hedging and tactical trading with short-dated index options
The Russell 2000 Index is one of the world's premier benchmarks for measuring the performance of
"Investors are becoming increasingly sophisticated and are using short-dated index options for a variety of trading strategies," said Catherine Clay, Executive Vice President and Global Head of Derivatives at Cboe. "As evidenced by the sustained volume growth over the past couple of years, short-dated index options have become an indispensable tool for hedging, risk management, and income generation among a diverse base of market participants. As trading strategies become more tactical and average time to expiry trend shorter, our clients are seeking even more granular expiries. We're excited to continue collaborating with FTSE Russell to offer daily expiries for the Russell 2000 Index options suite and expand our customers' abilities to trade short-dated strategies across additional new products."
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"FTSE Russell and Cboe share a deep commitment to delivering innovative solutions that meet the evolving needs of the marketplace," said Shawn Creighton, Director of Index Derivatives Solutions at FTSE Russell. "We are excited to continue building on our successful relationship and leverage FTSE Russell's position as a leading global index provider and Cboe's deep expertise in derivatives trading to facilitate more tradeable products and investment opportunities tied to the Russell 2000 Index – the world's most comprehensive and precise measure of the small-cap segment of the
RUTW and MRUT options are European-style options (no early exercise) and cash-settled (no delivery or assignment of shares) at expiration with P.M. settlement. MRUT options are structured like standard RUTW options and similarly track the underlying Russell 2000 Index but feature a smaller contract that is 1/10th the size. MRUT offers a potentially more cost-effective way to execute small-cap equity trading strategies.
RUTW and MRUT options are exclusively listed on Cboe's options exchanges. A total of 15.2 million RUT options contracts were traded in 20231, with an average daily volume (ADV) of 63,000 contracts, representing approximately
For additional information on Cboe's franchise of FTSE Russell-based index options, visit Cboe's website.
About Cboe Global Markets
Cboe Global Markets (Cboe: CBOE), a leading provider of market infrastructure and tradable products, delivers cutting-edge trading, clearing and investment solutions to market participants around the world. The company is committed to operating a trusted, inclusive global marketplace, providing leading products, technology and data solutions that enable participants to define a sustainable financial future. Cboe provides trading solutions and products in multiple asset classes, including equities, derivatives, FX and digital assets, across
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1 YTD through December 15, 2023
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