Published On: Thu, May 5th, 2011

HKEx to Introduce Synthetic Futures Trading in its Stock Options Market on 9 May

Hong Kong Exchanges and Clearing Limited (HKEx) will introduce a standard combination trading function in its stock options market on Monday, 9 May this year to allow investors to use synthetic futures strategies in the trading of five active stock option classes: China Construction Bank, China Life Insurance, China Mobile, HKEx and HSBC.

A synthetic futures strategy is a stock option combination which consists of two legs. The buyer in a synthetic futures transaction buys a call option and sells a put option with the same underlying stock, strike price and expiry date, whereas the seller in the transaction sells a call option and buys a put option with the same features. The following table provides an example of synthetic futures transactions:

Buyer
Buys one Company A Call Option with a $10.00 strike price that expires in June 2011.
Sells one Company A Put Option with a $10.00 strike price that expires in June 2011.

Seller
Sells one Company A Call Option with a $10.00 strike price that expires in June 2011.
Buys one Company A Put Option with a $10.00 strike price that expires in June 2011

Synthetic futures are designed to help investors manage delta exposure in stock options portfolios and reduce their capital outlays in options-related trading activities.

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