John about Micros and Nanos in John’s Take

John’s Takes

John about Micros and Nanos in John’s Take 

John's Take Script

Micros Are Big, Nanos Are Coming Soon

This is John Lothian for The Spread Speaking about Micros and Nanos

One can not escape that as the trading world expands, it is getting smaller every day. It is getting smaller in terms of the size of contracts, the contraction in some equities prices recently, unfortunately for my portfolio, and even in stock splits, which are bringing the price of a share of stock down into the range where a retail trader can manage.

In the crypto world, there are Satoshis, one hundredth of a million bitcoins to trade. In equities, there are odd lots, trading less than 100 shares of stock, or even fractional shares. Today, you can buy a fraction of one share of stock through many firms, allowing you to build a portfolio of shares of different firms with a smaller investmentment stake, instead of just having to buy just one company’s shares.

Google, I mean Alphabet, announced a 20 to 1 stock split this week, cutting the price of the stock from about $2900 to $145 or so. Retail traders can now buy one share for $145 or ten shares for $1450. A full round lot, or 100 shares of Alphabet would cost about $14,500 or so. You get the idea. 

The CME also reported their Equity Index futures in January average daily volume increased  56 percent from the previous January. And the CME is not stopping there in growing their micros, as they announced The Biggest Micros Trading Challenge running from February 6 to 11. Trade a virtual $100,000 account on a CME trading simulator using micros and win $2500 for first place, $1750 for second and $1250 for third, or $1000 for first place in each of the micro different contracts. The challenge starts Sunday, so register soon.

Over at the Cboe, even smaller, easier and more beautiful are the new Nanos options from Cboe Global Markets, scheduled to launch on March 14, pending regulatory approval. Nanos by Cboe are 1/100th the size of S&P 500 Index options contract, one multiplier, cash-settled (no delivery of physical shares) and European-style (no early exercise).

What does all this mean? Well the one multiplier means that the price you see on the screen for the index is the price of the index because the multiplier is $1. 

Nanos are cash settled. No delivery of shares, just cash. European style options means there is no risk of early exercise of your option if you are short. If a long options holder wants to exercise they need to find an American style option product to do so. 

This new option contract has many advantages. It allows new traders to learn without making hugely costly mistakes. Cboe and many of its brokerage partners are offering extensive educational programs for Nano traders. 

It allows experienced traders and investors to more precisely manage their risk, a recurring theme you will hear with minis, micros and now nanos. 

And here is the best part I have learned during my forty-four years in and around the markets: the better people can manage their risk, the more risk they will take. And, the more contracts they will trade. I predict this will be a great contract for the Cboe and I expect to see more contracts like it offered. Nanos are the missing link for options traders to be able to micro manage their portfolio risk, or shall I say nano manage their risk. 

This has been John Lothian




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Opinion: Class-Action Lawsuit Against CME Group Holds Disruptive Potential to Membership Prices, Future Deals and CME Leadership

Opinion: Class-Action Lawsuit Against CME Group Holds Disruptive Potential to Membership Prices, Future Deals and CME Leadership

A long-standing certified class-action lawsuit against CME Group, filed by members of the Chicago Board of Trade and Chicago Mercantile Exchange, poses a potential threat to the exchange group’s membership market. A mediated settlement, encouraged by the judge, could reshape how trading rights are offered at the exchange and potentially benefit a class of shareholders, whose B-shares have declined while A-share values rose.

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