Exchange operator the CBOE has announced the introduction of a new class of derivatives aimed specifically at retail investors and traders.
The new instruments, which will be known as Nanos are options with much smaller contract sizes, and they will launch in the first quarter of 2022.
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Where can you trade CBOE Nano Options?
To trade the CBOE Nano options you will need a DMA futures broker like
What instruments will have Nano Options contracts?
The first instrument to add Nanos to its list of derivatives will be the S&P 500 index. Which will have a Nano option contract size of just 1/100th of a standard index option lot.
If history is any guide the S&P 500 Nanos will act as a proof of concept for the product and should they prove popular the CBOE will likely create Nanos options on other instruments.
How will Nano contracts work?
The new Nano contracts will be European style options meaning that there can be no exercise before the expiry date. Unlike American style options which can be exercised at any point during the lifetime of the contract.
Nano options will be cash-settled rather than deliverable, and they will sit alongside the CBOEs existing suite of S&P 500 options.
Which includes AM and PM expiring options, mini options, as well as weekly and monthly expiring series, on the S&P 500 index, its ESG sub-index and select sector indices.
Who are the new options contracts aimed at?
The new smaller options contracts are designed to provide a “sandbox” for those new to options trading. Reducing position sizes will help to limit options trading risk to some extent; however, it certainly won’t remove it entirely.
Speaking about the new instruments Ed Tilly, Chairman, President and CEO of CBOE Global Markets said that:
“Through our Nanos S&P 500 product, we are broadening access to a greater universe of traders who can enjoy the potential benefits options provide, including hedging, asset allocation and income generation strategies.”
The CBOE will also introduce new educational tools to help novice options traders better understand the concepts and trading strategies provided by index options.
Rob Hocking, Head of Derivatives Strategy at CBOE said of the new educational tools
“CBOE Global Markets has a long-standing commitment to education, which better enables all types of investors to access our markets, understand our products and potentially benefit from our solutions,”
Why has the CBOE introduced Nano Options?
In the last 18 months, the CBOE has introduced a number of initiatives aimed at the retail market, a period in which the options market has experienced explosive growth.
In the run-up to the quarterly expiry in June, there were $818 billion worth of single stock options outstanding and total nominal exposure, in all single stock options series, across all exchanges was estimated to be $3.0 trillion.
The CBOE would like to divert some of that growing interest in single stock options into its index series, which includes the S&P 500 and options on a number of popular index-tracking ETFs such as SPY, QQQ, and the VIX index which tracks volatility in options on the S&P 500 stocks.