Chinese Investors Explore Equity Options in 2014

During the past three weeks I delivered presentations on use of index options and volatility products to an aggregate total of more than 300 Chinese financial professionals in these four cities —

1.         Shanghai, China (6th largest urban agglomeration in the world, with population of 19.5 million);

2.         Beijing, China (9th largest urban agglomeration in the world, with population of 15 million);

3.         Shenzhen, China (23th largest urban agglomeration in the world, with population of 10.2 million);

4.         Chicago, IL, USA (27th largest urban agglomeration in the world, with population of 9.5 million).

Numerous attendees told me that the timing of the presentations was very good, in that Chinese regulators are reported to be exploring the possibility of permitting the use of certain equity options and stock index options by Chinese investors later this year.  Chinese exchanges already offer successful futures on commodities (steel rebar and soy meal) and on the CSI 300 stock index.

VOLATILITY INDEXES – VIX, VXFXI, VHSI

Many attendees were very eager to learn more about volatility indexes such as –

  • VIX® – CBOE Volatility Index®
  • VXFXI – CBOE China ETF Volatility Index
  • VHSI – HSI Volatility Index (Hong Kong) (licensed to use the VIX® methodology)
  • VXTYN – CBOE/CBOT 10-year U.S. Treasury Note Volatility Index

It appeared that some attendees were unaware of the existence of the US-based iShares China Large-cap ETF (ticker FXI), and they were interested in the fact that the annual 2013 trading volume for FXI options at CBOE was more than 3.47 million contracts.  The VXFXI volatility index is designed to reflect the expected volatility of the FXI ETF. Some VIX-based products now are offered in Asia.  More information is at www.cboe.com/volatility

MM China Vol indexes VXFXI

OPTIONS BENCHMARK INDEXES

Many of the attendees also were very eager to learn more about the BXM, BXY, PUT and CLL benchmark indexes that write S&P 500 options.  More than $30 billion has been invested in buy-write funds.    Many buy-write investors seek enhanced risk-adjusted returns; more information on studies and papers is at www.cboe.com/benchmarks.

mm china BXY PUT BXM CLL Feb 2014