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China starts trading of first stock options

By Ye Zhen | February 9, 2015, Monday | Online Edition

CHINA started trial trading of its first equity options today, in a latest a bid to boost market vitality and offer a new hedging tool for investors to manage risks in one of the world’s most volatile stock markets.

The options listed on the Shanghai Stock Exchange are based on the exchange-traded fund that tracks the SSE 50 index, which is a gauge of the performance of 50 largest companies on the bourse.

An option is a contract that gives the owner the right to buy or sell an underlying asset at a specified exercise price on a predetermined date in the future.

The first batch of 40 contracts includes call and put options due for March, April, June and September, with five strike prices at 2.20 yuan, 2.25 yuan, 2.30 yuan, 2.35 yuan and 2.40 yuan.

“The launch of ETF-based options is a significant step for China to diversify trading strategies and hedging tools for investors, improve price discovery process of the capital market and boost liquidity of underling assets,” Yao Gang, vice chairman of China Securities Regulatory Commission, said at the launch ceremony today.

The exchange allowed market makers to facilitate the trading of options. The first batch of eight market makers is Guotai Junan Securities, CITIC Securities, Haitong Securities, China Merchants Securities, Qilu Securities, Guangfa Securities, Huatai Securities and Orient Securities.

Huang Hongyuan, general manager of the Shanghai exchange, said the trading of the options is expected to be not very active in the early stage as the regulator have introduced risk control measures to ensure a stable running of the new derivative in the long run.

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