CBOE to Develop New Index Options Products Based on FTSE and Russell Indices

Over the past dozen years, the aggregate total trading volume for options on the Russell 2000® (RUT) Index is more than 190 million contracts. In 2014 the average daily notional value of trading in Russell 2000 options was more than $10 billion.

Building on the success of the Russell 2000 options, CBOE Holdings, Inc. announced today that it has entered into a licensing agreement with London Stock Exchange Group (LSEG), to develop and list options based on more than two dozen FTSE and Russell indices. Under the agreement, cash-settled options on these indices will now be available to trade in the United States on the Chicago Board Options Exchange (CBOE). In addition, as part of the agreement, CBOE and LSEG will collaborate on new index options products and investor education globally.

TOOLS FOR PORTFOLIO MANAGEMENT

Options on FTSE and Russell indices provide investors with tools to efficiently gain exposure to the U.S. and global equity markets, and to execute strategies for –

OPTIONS ON KEY STOCK INDEXES

LSEG’s leading global index franchises, FTSE and Russell indices, represent a diverse group of domestic and global equities with international appeal: the Russell indices include widely followed benchmarks of U.S.-based stocks while the FTSE indices focus primarily on global and emerging equity benchmarks that are widely used in U.S. market.

The deal announced today includes the bellwether FTSE and Russell indices: the FTSE GEIS (Global Equity Index Series), which covers 98 percent of the world’s investable market capitalization; FTSE EPRA/NAREIT; FTSE China 50; the Russell 2000® Index, which measures performance of the small-cap segment of the U.S. equity market; the  Russell 1000® Index, which comprises a broad large-cap equity segment; the Russell 1000® Value Index, which measures the large-cap equities with lower price-to-book ratios and expected growth values; and the Russell 1000® Growth Index, which measures large-cap stocks with higher price-to-book ratios and anticipated growth.

Three key indices – the Russell 2000, Russell 1000 and the FTSE-100, all recently hit record high values.  Two days ago there was strong media coverage of the fact that the FTSE-100 Index hit its first daily closing high in 15 years. I find it interesting to compare the three price charts below over similar time periods, and to note that in 1998 (during the tech boom) the large-cap Russell 1000 shot up 25.1% but that the Russell 2000 fell by 3.4%

mm1mm2mm3CBOE RUSSELL 2000 BUYWRITE INDEX (BXR)

The CBOE Russell 2000 BuyWrite IndexSM (BXRSM) is a benchmark index that measures the performance of a theoretical portfolio that sells Russell 2000 Index (RUT) call options, against a portfolio of the stocks included in the Russell 2000 Index. The average of the monthly gross premiums received by the BXR Index since June 2006 is 2.4% per month. Buy-writes can appeal to income-oriented investors in times of low interest rates and high p/e ratios. The BXR Index has had lower standard deviations than the RUT Index over the past decade. A January 2015 study  Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs provides a list of dozens of funds that are using the buywrite strategy. For more information on the BXR Index, please visit www.cboe.com/BXR.

FUTURES AND OPTIONS ON THE CBOE RUSSELL 2000 VOLATILITY INDEX (RVX)

The CBOE Russell 2000 Volatility IndexSM (RVXSM) is a key measure of market expectations of near-term volatility conveyed by Russell 2000® stock index option prices. It measures the market’s expectation of 30-day volatility implicit in the prices of near-term Russell 2000 options. Futures and options are available on the RVX Index www.cboe.com/RVX.mm4In both 2007 and 2008, the RVX Index rose more than 60%.mm5CORRELATIONS AMONG INDICES

In order to diversify portfolios, many investors explore the correlations of returns for different investments.  The negative correlations of volatility indexes such as the RVX (versus other traditional investments) can be intriguing to investors.mm6

CONCLUSION

As part of the agreement announced today, CBOE and LSEG will collaborate on new index options products and investor education globally.

Here are links to some of CBOE’s informational and educational efforts –

  • mike8man

    Its fantastic news that we have an alternative to the appalling LIFFE for ftse options and the sooner we can stop haveing to use LIFFE the better!