Euro Stoxx 50 Welcomes Zero-day Options Amid US Dominance Doubts

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The game-changing Zero-Day Options, previously attributed to a Wall Street downturn, have now made their way to one of Europe’s leading stock indexes. Deutsche Boerse’s Eurex, a renowned international futures and options exchange, has unveiled its offering of zero-day options on the Euro Stoxx 50 index, a move triggered by burgeoning institutional demand for short-term expiry options that allow investors to swiftly and accurately respond to specific market events.

Across the pond, zero days to expiration options, or 0DTEs, have seen a meteoric rise. Launched just last year by two major U.S. derivatives exchanges, the trading volume of these options, particularly those linked to the S&P 500 or an equivalent S&P 500-tracking exchange-traded fund, hit record highs in August. The fervid activity around these options was also reportedly a catalyst for a sudden U.S. stock selloff earlier this month.


Deutsche Boerse’s Eurex Introduces Zero-Day Options for Euro Stoxx 50

Investors in Europe now have the opportunity to trade in zero-day options, thanks to Deutsche Boerse’s Eurex. This increasingly popular stock option, which is being credited for a Wall Street down day earlier this month, is now available for one of Europe’s most traded stock indexes, the Euro Stoxx 50.

Growing Demand for Short-Term Options

Eurex’s move to offer zero-day options comes in response to the growing institutional demand for options with short-term expiries. Investors are looking to react quickly and precisely to specific market events. The so-called 0DTEs (zero days to expiration) options have seen a phenomenal rise across the Atlantic. Launched by two major U.S. derivatives exchanges last year, trading volumes for options linked to the S&P 500 or an S&P 500-tracking exchange-traded fund, such as the SPDR S&P 500 Trust, reached record highs in August.

U.S. Experience with 0DTEs

The CBOE reported that total volumes for S&P 500 Index options in July exceeded 2.6 million contracts with close to 46% of that volume (1.2 million contracts) in 0DTE contracts. In August, the total volume for SPX options was 2.9 million contracts and 0DTE options made up roughly 50% of that. The feverish activity in these options was also blamed for a sudden U.S. stock selloff earlier this month.

European Perspective

In Europe, the appetite for 0DTEs is yet to be determined. However, Peter Garnry, Saxo Bank’s head of equity, anticipates they will be popular, given that they have become the most traded in equity options in the U.S., particularly among individual investors. According to Deutsche Boerse, futures and options on the Euro Stoxx 50 are the most traded, with nearly 19 million index options and more than 15 million futures contracts traded at Eurex in July.

Previous Experience with 0DTEs in Europe

The concept of zero-day options is not entirely new in Europe. Koen Hoefgeest, a professional options trader based in the Netherlands, noted that daily Amsterdam Exchange Index options were introduced on Euronext Liffe Options Exchange in 2008. However, he does not anticipate a frenzy in daily options in Amsterdam and believes the interest from private investors will not be overwhelming.

Conclusion

It remains to be seen how quickly these options will take off in Europe and how they will be used by professional parties for leveraged products or hedging activities. However, given the popularity of 0DTEs in the U.S. and the growing demand for short-term options, it is likely that their introduction by Deutsche Boerse will be met with high interest.

Takeaways

The introduction of 0DTEs in Europe signifies a shift in the trading landscape, catering to the growing demand for short-term options. While it’s too early to predict their impact, it’s crucial for investors to understand these instruments and make informed decisions. The U.S experience with 0DTEs serves as a cautionary tale, highlighting the importance of understanding the potential volatility they can bring to the market. However, their popularity among individual investors is undeniable, suggesting a potential surge in their usage in Europe as well.

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