Strong Debut for SPX Extended Weekly Options, By Matt Moran

On May 31st CBOE began an extension of the listings of S&P 500® SPX Weekly (SPXW) options, and CBOE Holdings now maintains five consecutive expiration weeks available for trading options on the S&P 500. www.cboe.com/SPXW

1. VOLUME CHARTS FOR THE FIRST FIVE TRADING DAYS IN JUNE

In the first five trading days of June, the total volume for SPX Weekly options was 876,945, and average daily volume of SPXW options was 175,389.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. SPX EXPIRATION DATES NOW AVAILABLE

Here is a list of SPX options expiration dates over the next five weeks —

Expiration Options Contract    Microsite URL

8-Jun-2012 SPX Weeklys www.cboe.com/SPXW

16-Jun-2012  SPXpm options                  www.cboe.com/SPXpm

16-Jun-2012 SPX options (a.m.-settled) www.cboe.com/SPX

22-Jun-2012 SPX Weeklys www.cboe.com/SPXW

29-Jun-2012 SPX Quarterly Options www.cboe.com/SPXQ

6-Jul-2012  SPX Weeklys www.cboe.com/SPXW

13-Jul-2012 SPX Weeklys www.cboe.com/SPXW

Please visit www.cboe.com/SPX for information about more SPX expiration dates in future months and years.

 

3. MORE INFORMATION ON SPX WEEKLY OPTIONS

SPX Weeklys are traded on CBOE and quotes can be found in SPX options chains under root symbol SPXW. SPX Weeklys are PM-settled on the last trading day, typically a Friday. As with other PM-settled index options, the exercise-settlement value is calculated using the last (closing) reported sales price in the primary market of each component stock. On the last trading day, trading in expiring SPX Weeklys closes at 3:00 p.m. (Chicagotime). All non-expiring SPX Weeklys continue to trade until 3:15 p.m. (Chicagotime). re commonly included in SPX (traditional) options chains which are AM-settled.

Key features of SPX Weeklys options —

> LARGE CONTRACT SIZE WITH A $100 MULTIPLIER (ten times larger than SPY options);

> CASH-SETTLEMENT;

> EUROPEAN-STYLE EXERCISE.

www.cboe.com/SPXW

4. SPX WEEKLY OPTIONS — GROSS PREMIUMS OF MORE THAN 50% PER YEAR?

 A 12-page paper by Russell Investments entitled “Capturing the Volatility Premium through Call Overwriting” (December 2010) (available at www.cboe.com/benchmarks) explored the BXM Index and other SPX systematic call overwriting strategies, and noted that: 

“ … Exhibit 6 compares the 15-year historical annual premiums received by rolling weekly, monthly, quarterly, and annual ATM options. This historical data shows that shorter term options maximize the total amount of premium received on an annual basis. A one week tenor option rolled four times per month has generated more than 2.0x the premium of a one month tenor option rolled once per month. … This helps make clear that close to the money strategies with short tenors have consistently generated a higher level of gross income. … That said, it is important to note that short tenor strategies increase the probability of capping the upside in any given period. This is the result of the increased probability of paying an exercise cost when these shorter dated ATM options expire in-the-money. …”

Here a couple of cautionary notes re: gross premiums for a strategy of selling Weeklys covered call options:

(a) The transaction costs for selling Weeklys options every week of the year could be significant;

(b) The net returns from a covered call strategy could be negative, and usually are less than the gross premium received. (For a comparison regarding SPX monthly gross premiums received for the BXM Index, please see Exhibit 13 of the paper by Hewitt EnnisKnupp entitled “The CBOE S&P 500 BuyWrite Index (BXM) – A Review of Performance” (2012) (available at www.cboe.com/benchmarks)).