Long stock options

Below you can find all the news related to the launch of the long stock option contracts with maturities of up to 3 years. 

- all the following amendements will be effective as of Monday October 23rd, 2006 -

As of October 23rd, 2006 Borsa Italiana improve the range of products on offer on the IDEM, with the launch of long stock options with expiries up until three years, completing the iter started with the introduction of the long expiries on the FTSE MIB options in July 2005.

The reasons of the success of the long options are:

• possibility to quickly increase or reduce exposure on derivatives on a long term period
• opportunity to increase volatility trading on the long expiries
• hedging activities on structured products beyond 12 months
• alternative to the OTC trading

1) New expiries

On the basis of these considerations, it is decided to extend the maturities of the stock options adding, as well as 2 monthly expiries and 4 quarterly expiries of the March/June/September/December cycle, 4 new six-month expiries of the June/December cycle for the two subsequent years, for a total of 10 expiries.

2) Underlyings

However, the launch of the new maturities does not involve all the listed stock options on the IDEM.
At the beginning, only 7 stock option contracts will be listed:

• Assicurazioni Generali
• Eni
• Enel
• Fiat
• STMicroelectronics
• Telecom Italia
• Unicredito Italiano

The choise of the above underlyings is based on the liquidity of the stock and on the market interest. 

3) Strike price

Regarding the number of strikes generated for each maturity, the generation process depends on the options' expiry:   

• for the first 6 expiries (within 12 months), at least 15 strike prices on call and put series are quoted every day (1 at the money, 7 in the money and 7 out the money)
• for the last 4 expiries (up to 3 years), at least 21 strike prices on call and put series are quoted every day (1 at the money, 10 in the money and 10 out the money)

4) Strike intervals

The strike intervals depend directly on the strike price of each option.
The general rule sets for each long options series that the strike intervals are double of the short ones (please, see the table below).

With reference to the other contract specifications (lots, tick, expiry day,etc.), these are unchanged compared with those applied to the stock options with maturity within 12 months.

5) New market microstructure for options

To support the introduction of the long stock options, the IDEM launches a new market microstructure for options on the FTSE MIB index and for single stock options, with the aim to further improve market liquidity and the price discovery process.

The new market microstructure, which follows the changes of July 2005, consists in a full review of market making obligations (the only figure to be directly involved in the launch of the long stock options) and in the introduction of a new market making status called “Liquidity Provider”, which supports the activity of Primary Market Makers and Market Makers.

All the options contracts with expiry beyond 1 year will have at least 4 market makers (in some cases 6) which will guarantee a price on the trading book.
In particular, market makers will be: Banca Aletti, Banca IMI, Banca Nazionale del Lavoro, Deutsche Bank, Exane, Oddo Options ed UBM.
With reference to the maturities beyond 12 months, market makers must respond to request for quotes on the following iotions series:

• at the money
• first two in the money series
• first five out the money series

both for call and put, for at least 15 contracts.
Finally, market makers must respond to request for quotes within 2 minutes from the request and the answer must stay on the book for at least 15 seconds.

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For further information, please download the Long Stock Option flyer