February 9, 2015 / 4:01 AM / 3 years ago

FACTBOX-Details of China's first stock options

SHANGHAI, Feb 9 (Reuters) - China launched on Monday its first stock options, based on the
exchange-trade fund (ETF) tracking the SSE50 index, composed of the 50 most
heavily weighted stocks listed on the Shanghai Stock Exchange.
    Here are contract details of the options. For a spot story, click ; for a
column analysing the market's outlook, click.
   
 Provisions        details                   notes
 The product       SSE50ETF options          
                                             
 Target product    China SSE 50ETF           The ETF is managed by China AMC, one of China's
                                             top asset management firms.
 Types of          Plain vanilla call and    Call options bet rises in the target's prices; put
 contract          pull options              options bet falls.
 Contract size     10,000 units of the ETF   
 Premium (yuan)    Calculated on basis of    Premium is the price of option contracts, or the
                   lots, minimum movements   money that investors pay so as to own option
                   at 0.001 yuan             rights.
 Holding limits    Each account can hold 20  Holders of rights options have the right to but
                   rights contracts, 50      are not obliged to buy or sell target securities.
                   contracts of all types.   
 Implied                                     Market expectations of how much an asset price
 volatilities                                will move for a set of period, such as 1 month or
                                             1 year. High volatilities imply higher risk.
 Contract months   Delivery and next         As such, four contracts of March, April, June and
                   months, two nearest       September are listed initially. 
                   quarterly months          
 Last trading day  The fourth Wednesday of   
 and delivery day  the delivery month        
 Exercise          European exercise         European exercise means investors can exercise
                                             their rights on the delivery day, compared with
                                             U.S. exercise that can exercise any time ahead of
                                             or on the maturity of the options. 
 Trading hours     auction time: 0115-0125 GMT; normal trading: 0130-0330 GMT; 0500-0700 GMT 
 Delivery          Physical delivery with    Exceptions include the target product is suspended
                   exceptions                of trading, resulting in a lack of enough physical
                                             units to be delivered.
 Daily limit up    10 percent of the         Because it is based on the target prices,
 or down           previous' day's closing   volatility of option prices themselves will be
                   price of the target       much larger.
                   product                   
 Circuit breaker   Normal trading will be suspended and turned into auction trading for three
                   minutes when the premium of a contract reaches 50 percent up or down from
                   auction prices, among other conditions.      
 Margins           Calculated on             Option margins are only required for sellers
                   complicated formulas,     because buyers have the right not to exercise
                   reflecting  principle of  while sellers are obliged to deliver.
                   tight risk control        
 Source: The Shanghai Stock Exchange

 (Reporting by Lu Jianxin and Pete Sweeney; Editing by Richard Borsuk)

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