On July 3, Zhengzhou Commodity Exchange issued a notice to solicit public opinions on six options contracts of soda ash, staple fiber, manganese silicon, ferrosilicon, urea and apple (hereinafter referred to as soda ash).
2. Description
of the design of the main terms (1) Trading unit: 1 lot of soda ash futures contract
The trading unit of the option contract refers to the quantity of the subject matter corresponding to each trading unit. The trading unit of soda ash option is set as one lot of soda ash futures contract, which is convenient for traders to hedge the risk of futures position.
(II) Quotation unit: yuan (RMB)/ton
The quotation unit of the option is generally consistent with the quotation unit of the underlying futures. Same as the quotation unit of soda ash futures contract, the quotation unit of soda ash option contract is yuan (RMB)/ton.
(III) Minimum change price: 0.5 yuan/ton
The minimum change price of the option refers to the minimum value of the rise and fall of the unit price of the option contract. Judging from the operation of the domestic option market, the out-of-the-money and at-the-money option contracts with Delta absolute value between 0.2 and 0.5 are more active, that is, the price fluctuation of options is about 1/5 to 1/2 of futures. The ratio of soda option to the minimum change price of futures (1 yuan/ton) is 1/2, within which the market demand can be met.
(IV) Range of price limit: the same
as the range of the price limit of the underlying futures. The range of the price limit of the soda option contract is the same as the underlying futures. The same here means that the absolute number is the same, that is, the range of the price limit of the option contract is calculated according to the proportion of the settlement price and the price range of the underlying futures contract. When the option premium is less than range of the price limit, the price of the price limit is the minimum change price of the option contract.
(V) Contract months: two recent months + active months
The contract months of soda options are defined as two recent months and active months in which the open interest exceeds 10000 hands (unilateral), which can not only meet the market trading needs in a timely manner, but also help to centralize market liquidity and improve market efficiency.
(VI) Last trading day/expiration date: the third trading day
from the last to the 15th calendar day (inclusive) of the month prior to the delivery month of the underlying futures contract. The expiration date of the soda ash option is the third trading day from the last to the 15th calendar day (inclusive) of the month prior to the delivery month. It is consistent with the current contract rules of listed options in Zhengzhou Commodity Exchange, which is convenient for member companies to exercise their rights on the expiration date, and is conducive to traders'familiarity and mastery. On the one hand, the expiration date of the option is as close as possible to the delivery month of the underlying futures, which is conducive to better use of options for hedging; on the other hand, the option expires one month before the delivery month of the underlying futures, which can reduce the impact of option exercise on the operation of the delivery month of the futures.
(VII) Number of exercise prices: Covering the price range
corresponding to the range of up and down limit of 1.5 times of the settlement price of the underlying futures contract on the previous trading day. If the number of exercise prices is too large, it is not conducive to the concentration of market liquidity; if the number is too small, it cannot effectively cover the fluctuation range of the underlying futures price. By linking the number
of exercise prices with the range of the price limit of the underlying futures, when the underlying futures price fluctuates greatly, it can effectively cover the fluctuation range of the underlying futures price and meet the hedging needs of traders for out-of-the-money, flat-value and real-value options. With the change of the underlying futures price, each trading day before the expiration date will add a new option contract with a new exercise price according to the price range corresponding to the fluctuation of 1.5 times of the settlement price of the underlying futures on the previous trading day. An option contract with a new exercise price will not be listed after the market closes on the trading day prior to the expiration date.
(VIII) Interval of exercise price: The interval of exercise price shall be set
according to the segment of exercise price. The design of interval of exercise price shall mainly consider the level and fluctuation of futures and spot prices. The smaller the exercise price interval is, the more the number of corresponding option contracts in the same exercise price range is, which is not conducive to the concentration of market liquidity; the larger the exercise price interval is, the less the number of corresponding option contracts is, and the less the exercise price for traders to choose is, which is difficult to meet the needs of different traders.
According to the main operating range of soda ash futures and spot prices in recent years, the exercise price of soda ash options is divided into three sections with 1000 yuan/ton and 2000 yuan/ton as nodes, and the exercise price interval of each section is 10, 20 and 40 yuan/ton respectively, and the ratio of the exercise price to the exercise price is between 1% and 2%, which is basically consistent with the international mature market practice.
(IX) Exercise method: The exercise method of American
option can be divided into American and European. For the option buyer, the American option exercise can be made on the expiration date and the previous trading day, while the European option exercise can only be made on the expiration date.
International commodity options are generally American options. The exercise of American options is conducive to maintaining a stronger correlation between options and futures prices, providing traders with flexible choices, and reducing the impact of concentrated expiration of options on the operation of the underlying futures market.
According to the operation of listed options, there is a demand for early exercise in the market. Drawing on the experience of the international market and the operation of listed options, soda ash options also adopt American options.
(X) Trading code: SA-contract month-C (P)-exercise price
The soda ash option contract follows the composition method of the trading code commonly used in domestic commodity options, which is consistent with the composition method of the trading code of listed options and is easy for traders to understand and master. Call option is represented
by capital letter C, and put option is represented by capital letter P.
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