Cboe Introduces Enhanced Margin Treatment for Index Options Overwriting Strategies

• Margin rule change aims to enhance capital efficiencies when writing cash-settled index options against ETFs based on the same index
• Enables traders to use cash-settled index options as an efficient trading and hedging tool to manage positions at a potentially lower cost
• Cboe's suite of index options offer cash-settlement, European-style exercise and potential tax benefits

CHICAGO, March 20, 2024 /PRNewswire/ -- Cboe Global Markets, Inc. (Cboe: CBOE), the world's leading derivatives and securities exchange network, today announced the introduction of enhanced margin treatment for cash-settled index options. Cboe's margin relief rule aims to provide greater capital efficiencies for traders and reflects its ongoing commitment to advocating for smart and responsive market structure enhancements that meet the evolving needs of its customers.

Cboe's margin relief rule offers enhanced margin treatment when writing, or selling, a cash-settled index option in a margin account against an exchange-traded fund (ETF) that is based on the same underlying index. In the same way an investor can write an equity call option while holding a long position in the underlying security (i.e., a "covered" call), Cboe's rule change allows for writing of index options in a similar manner. An investor, for instance, could write a call option on the Mini S&P 500 Index option (XSP) while having a long position in a corresponding ETF such as the iShares Core S&P 500 ETF (IVV), SPDR® S&P 500® ETF Trust (SPY), or Vanguard S&P 500 ETF (VOO) to potentially enhance returns on their ETF.

Under the prior framework, there was no margin requirement for a short call that qualified as "covered." Given the similar risk/return profiles of writing an index call option (e.g., XSP) against a long ETF position (e.g., IVV, SPY, VOO) vs. writing a covered call, Cboe's rule now treats these index options as protected for margin purposes – and not subject to uncovered option margin requirements. This rule change is expected to enable traders to adopt overwriting options strategies at a potentially lower cost than is possible under the existing margin requirement, ultimately creating a more capital-efficient and flexible trading experience.

"Our margin rule represents an exciting development for the options market and provides an additional way for investors to incorporate cash-settled index options in their trading strategies," said Catherine Clay, Head of Global Derivatives at Cboe Global Markets. "Index options can be an excellent trading and hedging tool, offering many unique advantages over existing alternatives. For investors with ETF positions, index options allow them to overwrite long positions with the ease of cash settlement, while potentially mitigating risks of early exercise and capitalizing on potential tax advantages. Our margin relief rule may also potentially free up capital for investors – which means more resources to allocate to other market opportunities to optimize their trading outcomes."

Cboe is the exclusive home for S&P Dow Jones, FTSE Russell and MSCI index options, along with options on the Cboe Volatility Index (VIX). Cboe's proprietary suite of index options are cash-settled (no transfer of the actual underlying asset; instead, any profit or loss is exchanged in cash upon expiration) and European-style (options can only be exercised at expiration, removing call-away risk and facilitating easier management of positions.)

Cboe's rule applies to any index call or put option written against a position in a non-leveraged index mutual fund or non-leveraged ETF that is based on the same index underlying the index option and held in the same margin account. FINRA recently adopted a similar margin relief rule which conforms to Cboe's rule. To learn more about overwriting strategies with Cboe's index options, visit our website.

About Cboe Global Markets
Cboe Global Markets (Cboe: CBOE), the world's leading derivatives and securities exchange network, delivers cutting-edge trading, clearing and investment solutions to people around the world. Cboe provides trading solutions and products in multiple asset classes, including equities, derivatives, FX, and digital assets, across North America, Europe and Asia Pacific. Above all, we are committed to building a trusted, inclusive global marketplace that enables people to pursue a sustainable financial future. To learn more about the Exchange for the World Stage, visit www.cboe.com. 

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Cboe®, Cboe Global Markets®, Cboe Volatility Index®, and (VIX®) are registered trademarks of Cboe Exchange, Inc. The S&P 500 Index is proprietary to S&P Dow Jones Indices LLC.   S&P®, S&P 500®, XSP®, S&P 100®, SPX®, SPY®, Select Sector®, The 500 and US500 are trademarks of Standard & Poor's Financial Services, LLC and have been licensed for use by Cboe Exchange, Inc. Cboe Exchange's options on the S&P 500 Index, S&P 500 ESG Index and Select Sector Indices are not sponsored, endorsed, marketed or promoted by S&P Dow Jones Indices and S&P Dow Jones Indices does not have any liability with respect thereto.  All other trademarks and service marks are the property of their respective owners. © 2022 Cboe Exchange, Inc. All rights reserved.

Cboe Global Markets, Inc. and its affiliates do not recommend or make any representation as to possible benefits from any securities, futures or investments, or third-party products or services. Cboe Global Markets, Inc. is not affiliated with S&P, iShares, FTSE Russell, MSCI, and Vanguard. Investors should undertake their own due diligence regarding their securities, futures and investment practices. This press release speaks only as of this date. Cboe disclaims any duty to update the information herein.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker or from The Options Clearing Corporation, 125 S. Franklin Street, Suite 1200, Chicago, IL 60606 ([email protected]). The information in this document is provided for general education and information purposes only. No statement(s) within this document should be construed as a recommendation to buy or sell a security, or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this document is available by contacting Cboe Global Markets at www.cboe.com/contact. Past performance is not predictive of future returns.

Nothing in this announcement should be considered a solicitation to buy or an offer to sell any securities or futures in any jurisdiction where the offer or solicitation would be unlawful under the laws of such jurisdiction. Nothing contained in this communication constitutes tax, legal or investment advice. Investors must consult their tax adviser or legal counsel for advice and information concerning their particular situation.

Cboe Global Markets, Inc. and its affiliates, to the maximum extent permitted by applicable law, make no warranty, expressed or implied, including, without limitation, any warranties as of merchantability, fitness for a particular purpose, accuracy, completeness or timeliness, the results to be obtained by  recipients of the products and services described herein, or as to the ability of the indexes named herein to track the performance of the general market or any segment thereof, and shall not in any way be liable for any inaccuracies or errors. Cboe Global Markets, Inc. and its affiliates have not calculated, composed or determined the constituents or weightings of the securities that comprise the indexes named herein and shall not in any way be liable for any inaccuracies or errors.

Cautionary Statements Regarding Forward-Looking Information
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words such as "may," "might," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," and the negative of these terms and other comparable terminology. All statements that reflect our expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements.

We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Some factors that could cause actual results to differ include: the loss of our right to exclusively list and trade certain index options and futures products; economic, political and market conditions; compliance with legal and regulatory obligations; price competition and consolidation in our industry; decreases in trading or clearing volumes, market data fees or a shift in the mix of products traded on our exchanges; legislative or regulatory changes or changes in tax regimes; our ability to protect our systems and communication networks from security vulnerabilities and breaches; our ability to attract and retain skilled management and other personnel; increasing competition by foreign and domestic entities; our dependence on and exposure to risk from third parties; global expansion of operations; factors that impact the quality and integrity of our and other applicable indices; our ability to manage our growth and strategic acquisitions or alliances effectively;  our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to minimize the risks, including our credit, counterparty, investment, and default risks, associated with operating a European clearinghouse; our ability to accommodate trading and clearing volume and transaction traffic, including significant increases, without failure or degradation of performance of our systems; misconduct by those who use our markets or our products or for whom we clear transactions; challenges to our use of open source software code; our ability to meet our compliance obligations, including managing potential conflicts between our regulatory responsibilities and our for-profit status; our ability to maintain BIDS Trading as an independently managed and operated trading venue, separate from and not integrated with our registered national securities exchanges; damage to our reputation; the ability of our compliance and risk management methods to effectively monitor and manage our risks; restrictions imposed by our debt obligations and our ability to make payments on or refinance our debt obligations; our ability to maintain an investment grade credit rating; impairment of our goodwill, long-lived assets, investments or intangible assets; the impacts of pandemics; the accuracy of our estimates and expectations; litigation risks and other liabilities; and operating a digital asset business and clearinghouse, including the expected benefits of our Cboe Digital acquisition, cybercrime, changes in digital asset regulation, losses due to digital asset custody, and fluctuations in digital asset prices. More detailed information about factors that may affect our actual results to differ may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2023 and other filings made from time to time with the SEC.

We do not undertake, and we expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

SOURCE Cboe Global Markets, Inc.

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