Chicago Board Options Exchange is to list a Mini-SPX Index option (XSP) contract with a new PM-settlement feature beginning on 5 November.
CBOE's Mini-SPX Index options are one-tenth the value of the S&P 500 Index options (SPX), which are based on the premier benchmark of the broader US market.
The PM-settlement is preferred by many investors, including institutions that have end-of-day reporting requirements. PM-settlement, also used for single-stock and ETF options, allows investors to trade in and out of positions easily on settlement day.
Unlike Standard & Poor's Depositary Receipt (SPY) options and other ETF options, Mini-SPX Index options will be cash-settled and feature European-style exercise. European exercise eliminates the risk of early assignment, with potential loss of dividends.
Potential users of XSP include institutions and individuals seeking to gain exposure to the broad US stock market with a manageably sized contract, while gaining the flexibility of a PM-settlement, the ease of cash settlement and the certainty of European exercise.
Bank of America Merrill Lynch will serve as the designated primary market maker (DPM) for XSP options.
CBOE's current AM-settled Mini-SPX contract will be phased out beginning with the launch of the new PM-settled Mini-SPX contract.