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Media Release
BOMBAY STOCK EXCHANGE LAUNCHES TRADING IN SENSEX OPTIONS The Stock Exchange, Mumbai, is committed to bringing new financial products at the doorsteps of investors. In line with its commitment, the Exchange launched first exchange traded equity derivative, the Sensex Futures, in the Indian capital markets, on 9th June, 2000. One year hence, the Exchange is pleased to announce the successful launch of first exchange traded Index Options : The Options on BSE 30 Sensex, on Friday, 1st June, 2001. The Executive Director of the Exchange, Shri A. N. Joshi, who is also the Chairman of BSE Governing Council, said, "The Stock Exchange, Mumbai, has been a forerunner in product innovation for the benefit of investors & market intermediaries. Keeping up with the role assumed by the Exchange in the field of product innovation, BSE has launched First Options contract of the Indian capital markets, based on BSE 30 Sensex. The Exchange endeavors to provide the best international practices & systems for trading in Derivatives products, to the members for bringing them in league with their counterparts across the globe. The Exchange is actively imparting training & creating awareness about derivatives amongst market participants, for strengthening the derivatives market in the country".The inauguration of trading was done by Shri Nagendra Parakh, General Manager, Derivatives Cell, Securities & Exchange Board of India. The first historical trade of 1 Sensex Call options of June series was done at 9.30 a.m. between Emkay Share & Stock Brokers Ltd. (Option writer) and Dimensional Securities Ltd. (Option buyer), at the strike price of 3600 with a premium of 95 Sensex Points i.e., Rs. 9500 (Premium 95 sensex pts. * multiplier 100). BSE introduced June , July & August contracts for trading with multiple strike prices for Calls & Puts. Mr. Parakh congratulated the BSE Team & expressed happiness at the launch of Sensex Options, which according to him is the stepping stone for other derivative products. He also expressed pride in the fact that the Risk Management practices adopted by the Indian Derivatives Market match international standards & emphasized the need for training in this field. The First Index Options contract has been introduced by BSE with BSE 30 Sensex being the underlying index. The Sensex which comprises of 30 scrips, is the country's oldest index & most effective barometer to gauge the mood of the stock market. Sensex represents large, well-established quality companies with sound fundamentals from all significant sectors of the economy. The Deputy Executive Director of the Exchange, Dr. Manoj Vaish emphasized the need for derivative products to manage Risk, which has become more complex as compared to the past. He reiterated the commitment of the Exchange towards product innovation in the interest of market participants. According to Dr. Sanjiv Mehta, CEO, BSE Derivatives Segment, "with the introduction of Sensex Options & preparation of introducing Options on Individual stocks, the Exchange is moving towards multi-product environment, which will bring India in league with international markets. In line with international standards, the Stock Exchange, Mumbai, has adopted Portfolio based margining approach whereby overall risk in a portfolio of Sensex Futures and Sensex Options (& other derivative instruments when they are introduced), is identified & margin is calculated. By using this approach market players will avail the benefit of opposite and hedging positions in various products in their portfolio. This would eventually pave way for cross margining between Cash & Derivatives market for the most effective utilization of resources by the market participants. BSE has licensed world renowned risk management software called "Standard Portfolio analysis of Risk" (SPAN) from Chicago Mercantile Exchange Inc. (CME)". SPAN is a risk-based, portfolio-approach, simple yet powerful, efficient and accurate system for calculating margin requirements for portfolios of futures, options and other derivative and non-derivative instruments. Dr. Mehta also said, "The various segments of investors can now use Sensex Options for satisfying varying investment needs. Individual investors would be able to capitalize on market opinions (bullish, bearish or neutral) by acting on their views of the broad market or one of its many sectors. They will be able to gain exposure to a broad market, with one trading decision and frequently with one transaction. Sensex options position will supply investors the insurance needed to overcome the uncertainty of the marketplace. Hence, by paying a relatively small premium (compared to the market value of the stock), an investor can insure his stock position in the underlying cash market. The more sophisticated market professionals would find the variety of Sensex option contracts excellent tools for enhancing market timing decisions and adjusting asset mixes for effective asset allocation". Options on Sensex, are premium style, European options where the options contract would be exercised only on the day of the expiry. Sensex Call & Put Options contracts are available with one, two & three month maturity e.g.; in the month of June, June, July & August options contracts, will be available for trading. A contract expires on the last Thursday of the contract month e.g.; June Sensex options contracts would expire on the last Thursday of June which is 28th June, 2001. The Premium is quoted in Sensex points. The contract multiplier for Sensex options is INR 100, which means that monetary value of the Premium will be calculated by multiplying the Sensex Points by 100. For e.g. if Premium quoted for a Sensex options contract is 50 Sensex points, its monetary value would be Rs. 5000 (50*100). The Settlement value of Sensex Options will be the closing price of the Sensex on the expiration day. e.g.; if the Closing value of Sensex on last Thursday is 4000 & an In the Money Call Sensex Option with Strike Price of 3600 is exercised, the seller/ writer (who is assigned) will be obligated to pay R. 40,000 (difference between the settlement value 4000 & strike 3600 multiplied by the multiplier100), to the buyer. Thus the Sensex Options will be cash settled. There are at-least 5 strikes (2 In the Money, 1 Near the money, 2 Out of the money), available at any point of time. Thus at Sensex level of 3700, contracts available for trading would be with strike prices 3800, 3750, 3700, 3650 &3600. As the Sensex crosses 3750 or 3650, the new contracts with strike prices 3850 & 3550 respectively would be introduced for trading. The trading hours of Sensex Futures & Options are from 9.30 a.m. to 3.30 p.m.
Dr. Sanjiv Mehta June 1, 2001 |
