CBOE to launch S&P 500 Dividend Index options March 5

CBOE to launch S&P 500 Dividend Index options March 5

17/02/10

The Chicago Board Options Exchange (CBOE) today announced plans to begin trading options on the S&P 500® Dividend Index (ticker symbol - DVS) on Friday, March 5, 2010. The first contract of its kind in the U.S., S&P 500 Dividend Index options will be listed exclusively at CBOE. 

The S&P 500 Dividend Index, calculated by Standard & Poor's, represents the ordinary cash dividends for corporations comprising the S&P 500 Index, accumulated over a quarterly "accrual period."

Options on the S&P 500 Dividend Index will offer investors the opportunity to take a broad position on the direction of dividend payments of U.S. stocks, allowing them to directly hedge risks based on changes in the dividend-paying policies of stocks comprising the S&P 500 Index. Investors will have the ability to trade the difference between the expected dividends during an accrual period and the actual dividends over that same period. 

Because the S&P 500 Dividend Index is calculated using the same set of component securities, same shares outstanding, same capitalization-weighting methodology and same index divisor as are used to calculate the S&P 500 Index, DVS options can dovetail with trading of S&P 500 Index (SPX) options. For this reason, S&P 500 Dividend Index options will appeal to market makers who use dividend estimates when pricing options. 

"Until now, there has been no index option in the U.S. that tracks cumulative dividend changes on S&P 500 stocks -- and no way to hedge risk on lower-than-expected dividends or pursue opportunities on the potential for rising dividends. With S&P 500 Dividend Index options, anyone who collects dividends or wants to trade based on the difference between realized and implied dividends will have a way to register market sentiment," said CBOE Chairman and CEO William J. Brodsky.

"Dividends have certainly attracted investor attention over the past few years, as both a means to create a well-diversified portfolio and as an indicator of the overall health of the U.S. equity markets," said Robert Shakotko, Managing Director at S&P Indices. "Standard & Poor's is the first major index provider in the U.S. to offer an index that provides an explicit measure of dividend payout from the parent index - in this case, the S&P 500. We are proud to be working with CBOE, our longtime exchange partner, to bring products based on this new index to the exchange-traded marketplace."

Group One Trading, LP has been named the Designated Primary Market Maker (DPM) for S&P 500 Dividend Index options.

Quarterly Accrual Period

The quarterly accrual period runs from the business day after the third Friday of a quarterly options expiration month (March, June, September or December) through the third Friday of the next quarterly options expiration month. The S&P 500 Dividend Index, which is expressed in S&P 500 Index points, will be reset to zero at the end of each quarterly period as defined above. The quarterly nature of the index is designed to reflect the payment pattern of U.S corporate dividends, which typically have a set quarterly payment. Quarterly rebalancing also coincides with the quarterly expirations of S&P 500 options and futures.

For additional information on S&P 500 Dividend Index options, including contract specifications, price charts ticker symbols and frequently-asked questions, see www.cboe.com/DVS.