Weekly options for Mittal, ING and R2D2

The weekly and daily options on the AEX index are extremely popular, and Euronext decided to have a go at weekly options in the equity single stocks. Onwards from July 16th we will be trading weekly’s on Mittal, ING and Royal Dutch Shell (RD). The basic idea is pretty similar compared with the AEX weekly options. However, there are a few small differences.

Just like in the index, the weekly options in the single stocks won’t be just a new maturity in the regular options. It will be a separate class, called 1RD, 2RD, 4RD and if applicaple 5RD – with the number for the first friday, the second friday etc. For obvious reasons there won’t be a new class for options expiring the regular third Friday. Except some extra useless series in expiration week, though.

The reason for introducing these weekly’s as a separate class isn’t to bully investors (who can’t roll over their positions with simple time spreads). Systems at several institutions monitor options with a four digit maturity code (“1212” for Dec ’12) and hence lack the flexibility to include the weekly maturity schedule. Sounds like the Y2K problem.

The weekly options for 4MT, 4IN and 4RD will commence 16th of July with 11 strikes each. The strike interval will be in small steps. Take ING for instance, it will have five strikes around the at-the-money with a 10 cent interval, and three more strikes on the upside and the downside with steps of 20 cent. A larger strike interval for higher stock levels of course.

We will witness tight spreads, low absolute values and regular early exercise options. Nice as well are the dividend games to be expected a few times a year. All current liquidity providers can join as primary market maker in the new classes. There won’t be any competitive market makers selected.

Hard to say whether or not this single stock options will become a success. For retail investors the transaction costs are killing them with these low priced options. They need a real home run to make some profit. Euronext should have cut the transaction fees for investors to bring this 4MT, 4IN and 4RD markets alive.