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Crude oil options set sail smoothly! Will effectively improve the efficiency and accuracy of enterprise risk management in the crude oil industry chain

Fang submitted 2021-06-22 15:54:01

Crude oil options set sail smoothly! Will effectively improve the efficiency and accuracy of enterprise risk management in the crude oil industry chain

Shanghai crude oil options officially listed for trading

At 9 a.m. on June 21, crude oil options were officially listed for trading on the Shanghai International Energy Exchange (hereinafter referred to as Shanghai Futures Energy), a subsidiary of the Shanghai Futures Exchange (hereinafter referred to as the Shanghai Futures Exchange).

At the listing activity on that day, Luo Hongsheng, Director of the Futures Supervision Department of the China Securities Regulatory Commission, announced the China Securities Regulatory Commission’s " approval of the Shanghai International Energy Exchange Center for Crude Oil Options Trading". Li Jun, deputy Director of Shanghai Local Financial Supervision and Administration Bureau, and PetroChina Zhu Fang, deputy secretary-general of the Chemical Industry Federation, Pan Yixin, executive vice chairman of the China Air Transport Association, Huo Jinsan, general manager of China United Petroleum Co., Ltd., and Jiang Yan, chairman of the previous period of energy, delivered speeches successively.

Li Jun said in his speech that as China’s first batch of options denominated in RMB and fully open to foreign investors, crude oil options combine international experience with local advantages and will complement crude oil futures after listing, which will help further enrichment. The derivative product sequence of the oil and gas industry enables entity companies to form a more “tailored” portfolio hedging strategy, avoiding the risk of price fluctuations, and achieving stable operations; it helps to increase the price influence of important commodities and enhance Shanghai’s ability to allocate global resources. Ability to serve the high-quality development of the real economy; help to continuously enhance the radiation and global influence of Shanghai as an international financial center, improve the energy level of Shanghai, and promote the Shanghai city brand.

In Zhu Fang’s view, the listing of crude oil options will further enrich crude oil price risk management tools, help further effectively perform the functions of the futures market, improve the risk management capabilities of oil refineries, and promote structural adjustment, transformation and upgrading in the crude oil industry chain. The market competitiveness and international management level of China's oil refining enterprises will enhance the role and status of China's oil refining industry in the international market system.

Pan Yixin said that the cost of aviation kerosene accounts for about 30% of the total cost of airlines, and airlines have a very strong need for hedging and risk management of crude oil prices. The listing of crude oil options will provide air transportation companies with more risk management tools, enhance the market competitiveness of China's air transportation industry, and enhance the role and status of China's oil-related companies in the international market system.

Huo Jin San believes that after the listing of crude oil options, it will form a trinity organic pattern with spot and futures, providing companies in China's crude oil industry chain with richer diversified and refined risk management tools, improving the company's steady operation and further strengthening company competitiveness.

Jiang Yan introduced that since the listing of crude oil futures in 2018, through a series of measures such as the introduction of a market maker mechanism, a settlement price trading mechanism, the release of Japanese-Chinese trading reference prices, the expansion of crude oil delivery storage capacity, and the update of crude oil delivery grades, the overall operation has been stable and progressing. Under the circumstance of the impact of the epidemic and the violent fluctuations of the bulk commodity market, it has demonstrated strong resilience and self-repair capabilities, providing a reliable, stable and effective place for relevant entities to manage risks, and the market function has been better played.

He said that in this context, the listing of crude oil options based on crude oil futures contracts is a matter of course. With the gradual transformation of China's oil-related enterprises to high-quality development, industrial enterprises have continued to deepen their understanding of risk management, and the demand for risk management of crude oil prices tends to be more specialized and refined. The listing of crude oil options will form an effective supplement to the crude oil futures market, further improve the risk aversion system of domestic entities, and improve the efficiency and precision of risk management of crude oil industry chain enterprises.

A reporter from the Futures Daily learned that industry professionals have shown great enthusiasm for crude oil options. Liang Yi, general manager of the futures department of Sinochem Petroleum Co., Ltd., said that crude oil options have the characteristics of asymmetric risk-return and non-linear profit and loss. Enterprises hedging through options can not only achieve the same effect as futures hedging, but also may obtain further benefits.

"Although crude oil futures can also help companies stabilize related risks, it is difficult to meet the individual needs of companies." Liu Yong, general manager of the futures management planning center of Shantou Bo Petrochemical Co., Ltd., said that options can be combined with futures and other tools to meet the individual needs of different companies.

The event on the day was conducted in the form of "cloud listing" combining live and webcast. Guests and audiences from the China Securities Regulatory Commission, Shanghai Municipality, relevant industry associations, upstream and downstream enterprises in the crude oil industry chain, and news media witnessed the listing of crude oil options through online and offline methods.

Stable operation on the first day of listing

Judging from the transaction data and market reaction on the day of crude oil options listing, crude oil options operated stably on the first day, with active trading and reasonable transaction prices.

Data from the Shanghai Futures Exchange showed that crude oil options traded 4,475 lots (one-sided, the same below) on the first day of listing, with a turnover of 50,685,700 yuan. On that day, two series of 96 contracts of crude oil options were listed, with 1,652 positions held. The ratio of traded positions was 2.71, and the ratio of call options to put options was 0.81. The contract with the largest call options holdings is SC2109C510, and the contract with the largest put options holdings is SC2109P390.

The launch of crude oil options has received widespread attention from investors. Yang An, head of energy and chemical research and development of Haitong Futures, said that the trading of crude oil options on the first day of listing was more in line with market expectations, and the active trading was concentrated in at-value options and out-of-the-money options, indicating that investors are more mature and rational in the application of option tools.

From the perspective of market conditions, South China Futures and Options Analyst Wang Qian introduced that crude oil futures prices have fluctuated greatly recently, and crude oil prices on domestic and foreign markets have shown wide fluctuations in recent days. Yesterday, the domestic crude oil rose by more than a point after the opening. Affected by the slight increase in the underlying opening, the opening price of the call option after the opening of the crude oil option was slightly higher than the listing price, and the opening price of the put option was slightly lower than the listing price. Shanghai crude oil futures maintained an oscillating downward trend throughout the day, and both the call and put options closed down slightly near the closing value, and the overall fluctuations and changes were not large. "On the whole, the trading price of crude oil options on the first day of listing is relatively reasonable. Because of the large single-handed contract of crude oil options, the trading volume is not comparable to other futures options," she said.

Jin Xiao, Head of Commodity Research of the Topix Derivatives Research Institute, said that the trading volume and open interest of options were not particularly high on the first day of listing, on the one hand, the remote months of the two contract months of SC2109 and SC2110, and on the other hand the volatility of the recent crude oil market is not too high, the market participation is relatively moderate, and the trading conditions are in line with expectations.

From the perspective of option volatility, Wang Qian introduced that the implied volatility of crude oil options on the first day of listing did not change much. The implied volatility of SC2109 contract series at-value options surged after the opening, and then quickly dropped, basically maintaining around 33% throughout the day. As of the close, the implied volatility of main at-value options was 33.16%, the 90-day historical volatility of crude oil futures was 39.76%, and the implied volatility was lower than the historical volatility. "The overall volatility of crude oil options shows a smiling state. The implied volatility of real-value options and out-of-the-money options is relatively high, and the implied volatility of fair-value options is relatively low, but the overall difference is not much." She said, from the term structure of volatility, the volatility of crude oil options is near-high and far-low, indicating that the market has high near-term uncertainty and low long-term uncertainty.

For investors, Yang An said that the crude oil options traded on the exchange have a highly transparent, open, fair and just trading environment, which provides investors with very efficient trading tools. For industrial customers, crude oil options can reduce some of the intermediate costs of participating in hedging; for institutional customers, it enriches their investment allocation strategies; for ordinary investors, there is also an additional trading option.

Jin Xiao also believes that for the real industry, the rational use of crude oil options can meet the more refined risk management needs of enterprises. For financial institutions, crude oil options can help them realize a more diversified and more flexible asset allocation portfolio based on crude oil futures. "With the gradual maturity of the domestic crude oil futures market, the future crude oil options market will be a market dominated by institutions," he said.

Yang An said that in the future, upstream and downstream customers of the crude oil industry will participate in the market in large numbers." The launch of crude oil options is largely to meet the actual needs of customers in China's crude oil industry. As the domestic crude oil industry's upstream and downstream customers continue to deepen their understanding of risk management, the use of crude oil futures to manage risks cannot meet the needs of oil companies.” He said that listing crude oil options is conducive to improving the efficiency of price discovery, forming a more reasonable pricing mechanism, and providing flexible and effective risk management tools for upstream and downstream enterprises in the industrial chain.

For the market outlook, Jin Xiao believes that crude oil options investors need to pay attention to the changes in the absolute value of oil prices, the changes in the relative value of SC crude oil to Brent crude oil, the changes in the volatility of SC crude oil prices, and the liquidity limitations of the options themselves.

In this regard, Yang An said that investors should understand the suitability process of crude oil futures investors. Crude oil futures options are a relatively special investment product. Investors should not only be familiar with the relevant knowledge of options trading and understand the characteristics of contract rules, but also should be familiar with the crude oil market. As a product with obvious international characteristics, the influencing factors of crude oil options are more complicated than ordinary commodities, so investors must do their homework before participating and participate under the premise of controlling risks.



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