When I called up an SPX options chain on CBOE this week, I spotted what I'd been seeking: SPXPM options.
I was surprised. Several months ago, I noted that CBOE planned to offer electronic trading to the S&P 500 Index options on C2. Only recently had I learned that this electronically-traded version would be a different version than the more familiar one. This will be a PM-settled option that the CBOE is calling "SPXPM."
The press release sent out this week said that the CBOE was announcing plans for this version to be traded on C2, the CBOE's new alternative exchange. The reason that I'm surprised to find those options listed--and some teensy volume and open interest indicated--is that the CBOE's press release said these would be available upon SEC approval. I also had checked with one broker, the trading desk of another brokerage and a television personality well known for his options knowledge. The replies I received ranged from "no plans to implement at the moment" to the confirmation that these hadn't yet been approved by the SEC but would probably be available if they were.
CBOE says that these SPX PM options will be cash-settled, just as the regular SPX options are, but they'll be PM-settled, unlike the traditional SPX options with their Friday morning settlement. With those regular options, the settlement value is computed from the opening values of the SPX components, not the closing values. Both have European-style settlement. The CBOE touts the ability of customers to benefit from "a settlement convention found in the OTC market, without having to sacrifice the benefits and safeguards of exchange trading and clearing." When consulting with "our customers," the CBOE said, they were told that the PM settlement might bring more traders into this vehicle.
That remains to be seen. The CBOE has introduced other SPX-related options that are hybrid, if not purely exchange-traded. For example, do you know much about the XSP, the Mini-SPX options introduced in late 2005? If you do know about them, maybe you're one of people who holds the APR 135 puts, with the 456 in open interest the biggest open interest I could find in that expiration period. While I suspect that a purely exchange-traded option will gain some traction eventually, we don't know how much and how long that will take.
Perhaps these will soon be the biggest thing since AAPL weeklies were introduced. Therein lies a caution for all SPX traders, whether we intend to take a cautious stance and wait for some history to be established before we jump on this bandwagon or not. If this becomes the go-to vehicle for traders who want to employ SPX options in their trades, volume will likely decrease in the traditional SPX options.
For now, I'd advise keeping an eye on developments. I doubt you can do anything else because trading desks may not even known of its existence yet, and I'm not certain how long SEC approval will take. I'm also not certain why we're seeing these listed on the CBOE site. I'll try to do my part to keep you updated. We don't want to be trading any illiquid vehicle, so I'll stay away from the new options until I see enough volume in them to persuade me to give them a try. For whatever it's worth, although some decry the role of specialists and market makers as outdated, unnecessary and outright damaging, I found much better success managing my SPX positions on Flash Crash Day than did some other traders in other vehicles.