Country Index Options

Options Trading FAQ Topic: Oh Canada, Oh, Canada! And other options on country indexes.

Dear Options Trading FAQ:

Canadian markets are facing lots of turbulence and fear-inspired downward pressure as we approach Monday's referendum vote that could lead to the secession of Quebec from the rest of Canada. Though I live in Canada, I have never played their markets. For a variety of reasons (I'd be happy to send along my arguments if you like), I am convinced that the vote will be "non"; that Canada will remain whole. Therefore, I expect a strong upward breakout Tuesday morning when the results are known. My question: how would you play this on the option side?

Are there TSE 300 index options? If there are, I was thinking of buying calls on Friday. I don't play currencies, but I am changing some of my US $s to CAN$s this week. Do you follow and play options on Canadian markets?

Loyal Canadian Options Trader

Dear North of the Border:

With your grasp of the situation, you should be on public television! We stick mostly with US issues here at my office. We get the occasional client order for Canadian securities, and they are usually restricted to shares of junior mining companies. So with our exposure to Canadian shares so low, no one here has developed any sort of personal interest. Sorry. No , I don't know of any index option plays for Canada. Maybe the readership can suggest something. Other countries do have index options available.

For a list of specialized indexes, check with the exchanges. Some of the more popular country indexes are the MEX (Mexico) and JPN (Japan). New ones include the LTX (Latin) and ISX (Isreali). A trick with some of these is that of the difference in time zones. The JPN price, for example, is posted just once at the beginning of the day while the MEX is constantly updated. With the static ones you have the additional challange of trading in anticipation of the index moving a certain amount. That's a little weird when you are used to the option premium being priced off a real-time index.

Other less popular country indexes are NIK (Nikkei 300), HKO (Hong Kong), XIS (Isareal), MXY (Mexico) and coming soon the MEX-30, an index based off of 30 Mexican stocks (MEX and MXY are based off of ADRs). Also I do believe options trade on the Nikei 225 futures, but i'm not sure. There are both TSE 35 and TSE 100 index options available on the TSE. I beleive they are American style options but I'm not 100% sure. Settlement is the same OEX and other index options, $100 a point. The TSE 35 has NOV,DEC,March and Jun expiry months currently offered with srikes from $220 to $247.50 (listed yesterday). Yesterdays TSE 35 value close was $226.79 ... Strikes are 2.5 each way ...

In regards to Japan, the Nikkei futures trade at the Merc in Chicago, and are what most market makers in the JPN index watch and hedge with. So you have a real time hedge and thus real time index. The JPN implied future closely mirrors the Nikkei.

BTW the TSE35 is an index of major 35 companies in the TSE 300. The TSE35 options seem to have more liquidity than the TSE100 options.

Good luck and trade well! Remember, an educated options trader is the best options trader. Browse these books books on trading options.

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