CBOE To Offer New Customized Option Pricing Service Through Market Data Express
Chicago Board Options Exchange, Incorporated (CBOE) announced today that its affiliate Market Data Express, LLC (MDX) plans to launch the CBOE Customized Option Pricing Service (COPS) on Monday, January 14. The new data service, which employs the market-making expertise of CBOE's liquidity-providing community, offers subscribers end-of-day indicative valuations for "customized" options such as FLexible EXchange (FLEX) options and certain over-the-counter (OTC) options.
COPS was designed in response to requests from institutional investors – including mutual fund and hedge fund administrators and risk managers for insurance companies and custodial banks -- that need to accurately price the value of custom options held in their portfolios on a daily basis. Many of these institutions are required by the U.S. Securities and Exchange Commission (SEC) to produce daily funds reports for their customers -- measuring Net Asset Value (NAV) of funds held in their portfolios -- by 4 p.m. Central time. COPS may help institutional investors more efficiently manage this reporting process.
COPS differs from other valuation services, which typically price options only by request, each using a single pricing model. By contrast, COPS, for the first time, will rely on robust pricing models of multiple CBOE market makers to help generate indicative values for as many as 3,000 options series on 300 underlying options classes each day. MDX will average the valuations submitted by market makers to MDX after the market close and provide COPS subscribers with custom data based on those averages each day.
"We are pleased to introduce our new options valuation service, which is unlike any other," CBOE President and COO Edward Tilly said. "CBOE's market makers continuously quote hundreds of thousands of standard options series each day. COPS is unique in that it applies this quoting expertise in standard options to customized options. The result is options values representing the collective pricing opinions of multiple, professional market makers."
Initially, Wolverine Trading, Spot Trading and Sumo Capital, which collectively make options markets on nearly 2,000 options series at CBOE, will participate in the COPS program. They will price:
- All open FLEX options positions. COPS will provide indicative prices for all existing FLEX options positions on all U.S. options exchanges. FLEX options are exchange-traded options that allow investors to customize basic option features including the contract size, expiration date, exercise style and exercise price.
- OTC options. COPS will provide indicative prices for any OTC option requested by a customer as long as it has the same degree of customization as FLEX options, i.e., limited to plain vanilla options that have a customized strike price, expiration date and exercise style (American or European).
- Theoretical option prices. COPS will provide theoretical prices for a series of options, which offer indications of potential options prices for options that have not traded and are often used by traders to evaluate a security. COPS theoretical options series valuations, with one to 15-year expirations, will offer long-dated implied volatility insight that may be particularly valuable to institutions that have long-term equity liabilities. COPS will provide theoretical prices for the following six index options: the S&P 500 Index option (SPX); Nasdaq 100 Index option (NDX); Russell 2000 Index option (RUT); Dow Jones Industrial Average Index option (DJX); S&P 400 MidCap Index option (MID); and the MSCI EAFE Index ETF option (EFA). The strike prices and premiums for these options will be expressed in percentage terms, allowing subscribers to make simple day-to-day comparisons.
For more information on COPS, see www.cboe.com/COPS.