By Laura Matthews
NEW YORK, Oct 27 (Reuters) – The New York Stock Exchange is preparing to start trading a new type of options contract that lets investors make all-or-nothing bets on whether a stock or exchange-traded fund will close above or below a set price.
The launch comes as trading in options and event-based contracts has surged, prompting exchanges to develop new products that appeal to both retail and institutional investors looking for more precise ways to express market views and manage risk.
NYSE is also seeking approval for a second product tied to company earnings metrics, the latest push by exchanges to capitalize on booming demand for event-driven trading.
The binary return options contracts are expected to begin trading within days. The lineup includes 12 underlying securities, including Apple, Nvidia, Tesla and the SPDR S&P 500 ETF Trust, with additional securities to be added over time.
“We’ve seen this incredible growth in the US options market over the last several years. When we look inside that volume growth, there’s a lot of interest in newer ways to trade or newer products to trade,” said Kevin Tyrrell, chief product officer at NYSE.
Options contracts give holders the right, but not the obligation, to buy or sell the underlying asset at a predetermined price.
NYSE is also awaiting US Securities and Exchange Commission approval for binary key performance indicator, or KPI, options, which would pay investors based on whether a company reports a specified result above or below a certain threshold.
Unlike traditional stock options, whose value is tied to share price moves, KPI options would allow investors to trade directly on metrics such as net sales, earnings per share, cloud-computing revenue or vehicle production.
The cash-settled, European-style contracts, meaning they can be exercised only at expiration, would pay either $1 or nothing at expiration, depending on whether the reported metric meets the contract’s strike level.
Cboe Global Markets recently received approval for similar KPI-based contracts in partnership with Robinhood .
(Reporting by Laura Matthews in New York; Editing by Matthew Lewis)
