NYSE bets on all-or-nothing options as event driven trading gains traction
NYSE is preparing to launch binary return options that will let investors make all-or-nothing bets on whether stocks and ETFs finish above or below set prices. The exchange is also seeking approval for KPI options linked to company earnings metrics, expanding the range of event-driven trading products available to investors.
The New York Stock Exchange (NYSE) is set to launch a novel type of options contract that enables investors to make all-or-nothing wagers on a stock or exchange traded fund's performance. This move aligns with the escalating demand for more precise trading methods to capitalize on market events. The binary return options are anticipated to commence trading shortly, initially covering 12 securities such as Apple, Nvidia, Tesla, and the SPDR S&P 500 ETF Trust, with additional securities planned for future inclusion.
The decision to introduce such contracts is driven by the burgeoning interest in event-based trades. Options trading and event-based contracts have witnessed a rapid surge, prompting exchanges to devise products tailored to investors seeking more exact ways to express opinions on individual stocks or general market trends. Kevin Tyrrell, NYSE's chief product officer, commented to Reuters, "We've witnessed this remarkable growth in the US options market over the past several years.
When we delve into this volume growth, there's a significant amount of interest in newer ways to trade or newer products to trade."
Unlike conventional options, these new contracts are structured around a straightforward outcome. They would pay $1 or nothing at expiration contingent on the underlying security's closing price being above or below the contract's strike level. Furthermore, NYSE is pursuing approval from the U.S. Securities and Exchange Commission (SEC) for another product: earnings-linked options.
These cash-settled, European-style contracts, known as binary KPI (Key Performance Indicator) options, would pay investors based on whether a company achieves a specified result above or below a predetermined threshold. The metrics encompassed under these contracts could include net sales, earnings per share, cloud computing revenue, and vehicle production.
These contracts could only be exercised at expiration, with investors either receiving $1 or nothing, depending on the reported results.
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