One session options are European style options that are valid for one trading session only, expiring prior to the start of the next trading session.
The overnight one session options (Australian night) were launched in 1993 and in 2002 the intra-day one session options were launched for the day session (Australian day).
One session options are approved for trading by:
- US Commodities Futures Trading Commission (CFTC)
- UK Financial Services Authority (FSA)
- Monetary Authority of Singapore (MAS) and
- Hong Kong Securities and Futures Commission
(SFC Hong Kong).
One session options on 3 year and 10 year treasury bonds are cost effective and flexible tools for market users. Specifically they can be used to:
- Manage short-term exposure: protect interest rate positions against short-term price movements
- Hedge positions from event risk: such as that associated with official cash rate announcements or economic data releases
- Outright trade: potentially profit from anticipating short term price movements (or the lack of) in the interest rate market
- Strategy trade: used for options strategies such as straddles and strangles
- Put the equivalent of a stop loss order in place: by providing a firm exit price in the event of a market decline (rise) if a trader has a bought (sold) position in the market.
- Overnight o ptions trading begins at the start of the night session (5.10pm) and ceases at the end of the night session (7.00am during US daylight savings time and 7.30am during non-US daylight savings time).
- At the start of the next night session new overnight option contracts are listed.
- Intra-day options trading begins at the start of the day session (8.30am) and ceases prior to the close of the day session, at 4.10pm. At the start of the next day session new intra-day option contracts are listed.
- Overnight and intra-day options are available on the 3 Year and 10 year treasury bond futures spot quarter month contracts.
- Exercise prices are set at intervals of 0.01 per cent per annum. The option premium is quoted in yield per cent per annum in multiples of 0.005 per cent.
- All in-the-money one session options are automatically exercised at expiry. Exercise of the options results in the holder receiving a futures position at the options strike price. All at-the-money and out-of-the-money one session options expire worthless.
- No initial margin is required for one session options. Normal margin requirements will apply if an option is exercised.
When are one session options most actively traded?
Overnight options are actively traded at the start of the night session and prior to the opening of the US markets. Trading tends to be most active on days when US FOMC (Federal Open Market Committee) cash rate and US economic announcements are made.
Trading in Intra-day Options is expected to be most active during the morning session. On economic and official cash rate announcement days, trading is expected to be heavy in the period prior to the announcement.
What happens to the option positions at the end of the session?
After the expiry settlement price period, the overnight and intra-day options traded during the session are automatically exercised or abandoned. All in-the-money options are automatically exercised into underlying futures positions. All at-the-money and out-of-the-money options are automatically abandoned.
How is the expiry settlement price determined?
The expiry settlement price is the weighted average of trade prices in the underlying contract taken over a 10 minute period. The 3 year treasury bond overnight options expiry settlement price is calculated between 8.30am and 8.40am in the next session. The 10 year treasury bond overnight options expiry settlement price is calculated between 8.32am and 8.42am in the next session. The intra-day option expiry settlement price is calculated between 4.15pm and 4.25pm in the session that the intra-day options were listed for trading.
When will my futures position from exercised options be allocated to my account?
One session options that are exercised into futures positions will be allocated to Clearing Participant accounts for the same trading day in which the contracts were traded. overnight option positions are exercised the following morning at 9.30am. Intra-day options are exercised at 5.15pm, after the close of the day session. At the start of the next business day no open positions in the one session option contracts will exist.