(Bloomberg) -- While interest in trading options on France’s main index has lagged behind European gauges — especially the benchmark Euro Stoxx 50 index — activity on single names has picked up.
Trading volume on Euro Stoxx 50 options is about flat over the past decade, with an average daily options volume of almost 1 million lots representing about €50 billion ($52.1 billion) notional value per day.
While that pales in comparison to the steep growth in places like the US, it dwarfs the CAC 40 Index, which typically trades less than 7,000 lots daily and around €550 million notional value.
Euronext launched daily CAC options almost a year ago, but overall volumes have stayed muted. That hasn’t stopped some firms from attempting to bolster liquidity: Maven Securities is expanding into market-making for listed daily and weekly CAC index options.
“We understand that existing investors may want to fine-tune their strategies around key events, and this added granularity could also attract new participants,” said Stuart Pyott, institutional trading at Maven Securities. “This initiative is part of our ongoing commitment to boosting liquidity across the derivatives spectrum.”
There has been one bright spot for options activity in France: single stocks. Auto-callable issuance has diversified away from the Euro Stoxx 50 after Covid and looks to have found a home in French companies, such as Orange and Credit Agricole SA. Stocks with high dividend yields and elevated implied volatility can be attractive for the product, as those factors boost the coupon on the auto-callable.
“The major driver of liquidity in the last 10 years in index options in Europe has been structured product issuance, mostly via the auto-callable,” said Antoine Porcheret, Head of Institutional Structuring, UK, Europe, Middle East and Africa at Citigroup.
An equity autocallable is a structured product typically linked to an individual stock or an index, often popular with retail investors because it offers the potential for steady income and early redemption under specific conditions. For example, an autocallable on a bank or telecommunications stock might pay a semi-annual coupon, which may require the stock price to stay above a predetermined level on specific observation dates.
If, on a preset date, the stock price rises above the “autocall barrier,” typically set at or near the initial stock price, the product automatically redeems early, returning the investor’s initial investment along with the coupon payment. Additionally, at maturity, the product may provide capital protection if the stock price remains above the “downside barrier,” a lower level often set at 50% to 70% of the initial stock price. If the downside barrier is breached, the investor could face losses proportional to the stock’s decline.
“On indices such as CAC and AEX, that issuance has tailed off — so listed option volumes have trended down in recent years on the peripheral European indices,” Porcheret said. “Conversely on certain single names in France, that issuance has picked up, so you see greater flows on some French single names in the listed market.”
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