Expert Explanation of Copper Option Exercise Rules and Precautions

copperfuturesoptionAs the first industrial product option in China, it has been highly regarded by the market since its launch. Currently, the first batch of listed companiesCU1901The option contract has entered its last five trading days,12month24The day will come to an expiration date. Industry experts have stated that unlike other commodity option contracts, copper options adopt a European style exercise design. To reduce market participation risks, relevant parties should be familiar with the business process of the expiration date, understand the exercise rules and precautions.

In order to facilitate member units' consultation on relevant exercise rules, the Shanghai Stock Exchange recently announced the exercise hotline to the public. At the same time, in order to promote market wide familiarity with the business process of copper option expiration dates,12month15On the same day, the Shanghai Futures Exchange also conducted a full market exercise on the "copper option expiration date exercise business".

Need to prevent the risk of repeated exercise

Industry experts say that relevant participants need to pay attention to four aspects during the exercise process: first, automatic exercise; The second is to distinguish between "Pingjin" and "Pingyesterday"; The third is to avoid repeated exercise of rights; Fourthly, operate the membership service system with caution and closely monitor account funds and holdings.

Unlike other option products, the exercise method of copper futures options is European, and the buyer needs to exercise on the trading day before the expiration date21:00Until the expiration date15:30Apply for exercise through the trading system and membership service system. If the application is not actively submitted, the previous period will be terminated on the expiration date15:30In the future, the option will be automatically exercised based on the settlement price of the underlying futures contract on that day The industry experts mentioned above said.

Wei Feng, General Manager of Guotai Jun'an Risk Management Co., Ltd., told Futures Daily that copper option contracts are automatically exercised to prevent customers and futures companies from forgetting to exercise real value options when the options expire. On the other hand, it can also avoid invalid operations and save operation time. In the absence of special needs, customers generally do not need to apply for the exercise of options with real value relative to the settlement price, or waive the application for options with virtual value relative to the settlement price. Meanwhile, when submitting an exercise application, customers need to select "Ping Jin" and "Ping Yesterday", as both cannot submit exercise applications simultaneously. Due to the previous period's freezing of customer positions based on the quantity of each exercise application, if the quantity of each exercise application is greater than the available positions of the customer, the exercise application will be judged as failed by the system.

Additionally, it is important to avoid submitting duplicate exercise applications, "Wei Feng said10Hand buying positions, wanting to exercise rights4Hand, I submitted the order first4Exercise the right, and then submit it again if you don't trust me4Exercise rights, the previous period's system will execute the exercise rights for the customer8Hand. If you want to check whether the exercise operation was successful, you can query the exercise records in the exercise delegation after submitting the exercise application to avoid duplicate exercise

It is worth mentioning that for closing orders that have not been closed and have not been revoked before the expiration date, if the customer or futures company15:30Previously, it was not possible to submit exercise or waiver applications for corresponding positions through trading channels, but only after market closure15:30Previously, the application for exercise or waiver was submitted through the member service system of the futures company where they are located.

The exercise and waiver applications submitted from the member service system of futures companies are neither inspected nor frozen by the previous exchange. Therefore, when futures companies submit exercise or waiver applications on behalf of customers through the membership service system, they should first check the customer's funds and positions in the counter system, and then take corresponding actions to avoid submitting exercise applications for customers with insufficient funds and positions.

As a backup business channel, the member service system of futures companies should be used with caution in special circumstances, "Wei Feng said. As the option operation interface of the member service system shares the same interface for option self hedging, post exercise self hedging, exercise application, and abandonment application, futures companies should be familiar with the interface situation to avoid misoperation.

Real value exercise may also result in unprofitable situations

Generally speaking, in theory, it is profitable for buyers to exercise real value options immediately, but this is an ideal state. The market should recognize that there may not be a profit after the exercise of real value options. "Yan Bo, Deputy General Manager of the Market Making Business Department of Shanghai Haitong Resources Co., Ltd., said that if the settlement price of the goods on the expiration date deviates significantly from the closing price, or deviates significantly from the market price on the next trading day, combined with transaction costs, So the customer is likely to not make a profit when closing their position on the next trading day, which may deviate from their exercise expectations. Therefore, in terms of exercise decision-making, except for special circumstances, if the futures price is locked on the limit, it is necessary to buy or sell futures through exercise. Customers should consider the market and handling fee costs to determine whether exercise is necessary. That is to say, the customer may need to apply for a waiver of real value exercise.

At the same time, attention should also be paid to the potential risk of insufficient funds or over positions after exercise.

Yan Bo said that currently, option contracts and related futures contracts are subject to separate and restricted positions,CU1901The contract is in the first month before the delivery month, and the general customer limit is800Hand, if the futures position obtained by the customer after exercise plus the original futures position exceeds800Hand, there may also be a risk of forced liquidation.

Finally, it is also important to note that there may be a significant exercise of virtual options. For the exercise application instructions of a large number of virtual options submitted by customers, the previous exchange system will also execute the instructions in accordance with relevant business rules. However, the result of this operation is very unfavorable to the customer. Yan Bo said that if the exercise quantity is large, especially for deep virtual options, the customer may face significant losses. Therefore, when the customer applies for a large number of virtual options to exercise, Futures companies should focus on and understand the client's exercise purpose and intention, and provide corresponding risk reminders.

Futures Daily, Reporter Dong Yifei