HKEX Insight

HKEX’s options market has grown markedly since its launch, attracting a diverse set of participants, including asset managers, institutional investors and individuals.

Across both index and stock options, average daily trading volume reached 747,826 contracts in June 2024, up 8.5% y-o-y compared with June 2023.

Trading in short-dated options has played a significant role in the growth of the overall options markets. 

Participants are increasingly using short-dated options for their trading and risk management needs in global markets, both for single stock and index options. This trend is also gaining traction in Hong Kong.  

After launching Hong Kong’s first weekly options in 2019 with Weekly Hang Seng Index (“HSI”) and Weekly Hang Seng China Enterprises Index (“HSCEI”) Options, trading of weekly options products has grown steadily and now represents a significant part of the overall index options market. For example, 35% of all HSI options volumes are in weekly expiries.

The development of Hang Seng TECH Index Options has been another crucial part of the growth of the overall options market in recent years as investors have sought effective tools to manage their exposures to China’s fast-growing technology sector but – until now – weekly options haven’t been part of the Hang Seng TECH Index ecosystem.

That changed on 2 September, 2024 when HKEX introduced Weekly Hang Seng TECH Index Options to the market, expanding the range of tools available to investors and potentially adding momentum to the success of the Hang Seng TECH product ecosystem.

Looking at the weekly options alone, we see a number of benefits for investors, and here are four in particular:

1. Greater precision: Weekly options allow investors to adjust and create a position with more precision, for trading and risk management around market events and earnings announcements.
   
   
2. Efficiency and flexibility: With lower time value and typically lower premiums compared to longer-dated options, weekly options potentially present a cost-efficient choice for short-term trading and hedging. 
   
   
3. More trading opportunities: Weekly options create more trading opportunities due to their frequent expiration; for example, for those investors interested in trading options near expiry, there will be more expiries to trade within a month.
   
   
4. Short-dated yield enhancement: The frequent expiration of short-dated options allows option writers to sell options for income generation without taking longer-dated risks.

In addition to the benefits highlighted above, Weekly Hang Seng TECH Index Options offer a more specific advantage: a new, sector-specific tool.

China is an increasingly important driver of global technology and related financial activities, so global investors are focusing on and exploring investment opportunities in the Chinese technology sector.

Hang Seng TECH Index constituents are China technology leaders and the index has a higher volatility profile compared to HSI and HSCEI. The new Weekly Hang Seng TECH Index Options product offers opportunities for more effective short-term hedging and the potential for more profitable trading.

Stock options play a key role in managing portfolio exposures and facilitating price discovery for the underlying market.

Looking ahead, there are further developments on the horizon too.

In November 2024, HKEX will also launch weekly options for 10 selected stocks to cater to the growing demand for short-term trading and hedging.

This introduction of weekly stock options, the first short-dated single stock options in Asia, will complement HKEX's existing short-dated options offerings. 

Trading volume tends to flow to markets where there are well-designed products meeting market needs for efficient use of capital, competitive transaction costs and versatile trading and settlement facilities. 

HKEX stands to provide clients with tools to meet their risk management needs, enhancing the vibrancy of the ecosystem, and strengthening Hong Kong's position as an international finance centre.