With the structural changes in the portfolios of investment managers and rapidly falling yields in fixed income, the product mix of securities which are in demand for trading is shifting. The CME Group has announced the addition of its newest product: Weekly Equity Index Options on Futures.
The tool provides access to options on futures on the S&P 500, E-mini S&P 500, NASDAQ 100 and Dow ($5) options with lower cost of premium, than the longer-term risk management alternatives which are available on the market today.
The product is set to launch on September 26th with the expiration days for the weekly options being fixed on Wednesday. Traders will get access to highly-demanded products that are providing additional risk-management tools to their trading strategies which are becoming increasingly aggressive in tune with the easy monetary policy across the world.
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Low Fixed Income Returns and Fed Policy Encouraging Huge Risks
Both traditional money managers and hedge funds have been struggling with the lower returns on fixed income and many traders are pressured into delivering higher performance to compensate for the reduction in returns.
Just last week, one of the iconic hedge funds in the U.S. run by Paul Tudor Jones cut 15 per cent of its workforce. The reduction in staff was focused on money managers that have not managed to generate profits or have marked losses on their positions, sources told Bloomberg reporters.
The new options delivered to the market by the CME Group will be trading like the existing Weekly Index Options, but will expire on Wednesday instead. The expiration of the options will be European style with two fixed for October the 5th and the 12th.
According to the CME Group, a deep pool of liquidity is available for traders of weekly options, providing traders with opportunities to bet on the outcome of current news events. Another way to look at this is further focus on short term trading, which if history is any guide is not sustainable in the long run.
While U.S. regulators have focused on retail forex and binary options as highly speculative tools, exchange traded products have continued creeping into riskier territory without any regulatory scrutiny.