Crude oil option is about to "full moon" and is generally recognized by the industry
More than three years after the listing of crude oil futures, another important derivative trading category in the Chinese crude oil market, crude oil options, was held at Shanghai International Energy Exchange, a subsidiary of the Shanghai Futures Exchange (hereinafter referred to as the Shanghai Futures Exchange) at 9 a.m. on June 21. The center is officially listed for trading.
Why are crude oil options listed? What impact will it bring to the development of China's energy industry after listing? How is the market feedback, various issues have aroused eager attention.
The best timing
“Generally, new options require stable operation for a period of time before the listing of new options, with a certain degree of activity and effectiveness. From the relevant situation of China's crude oil futures in the past three years, it can be seen that China's listed crude oil options already have this foundation." COFCO Futures Researcher Zhang Zheng said.
Data show that in 2020, China's crude oil futures will have a total of 41,585,800 transactions, with a cumulative transaction value of 11.96 trillion yuan. The average daily position of crude oil futures by general legal person has risen to about 42%. According to FIA statistics, since 2018, Shanghai crude oil futures trading volume ranks third in the world, second only to WTI crude oil futures of the Chicago Mercantile Exchange (CME) and Brent crude oil of the London Intercontinental Exchange (ICE) futures.
On the one hand, the foundation of crude oil futures is already in place, and on the other hand, affected by the ups and downs of international oil prices in 2020, the necessity of China's listed crude oil options has become more prominent.
"Affected by the epidemic, the international crude oil prices will fluctuate sharply in 2020, which will have a major turbulent impact on China's national economy. It is very necessary to list crude oil options to stabilize the value and role of the national economic system." China (Hong Kong) Financial Derivatives Said Wang Hongying, Dean of the Investment Research Institute.
From the perspective of corporate demand, with the deepening of domestic supply-side structural reforms, China's oil-related companies are transforming to high-quality development, and the demand for refined and diversified corporate risk management has risen, and the call for the introduction of crude oil options is increasing. In particular, the violent fluctuations in the international crude oil market in 2020 have given China's oil-related companies a deeper understanding of strengthening risk management, and related demands have become stronger.
"In order to further optimize the risk management of upstream, midstream and downstream enterprises in China's energy and chemical industry chain, and to provide investors with more accurate risk management services, it should be said that the best time to launch crude oil options is to list crude oil options based on crude oil futures contracts, it is a matter of course." Wang Hongying pointed out.
"The official listing of crude oil options for trading is an important measure taken by the Shanghai Futures Exchange to firmly serve the real economy and improve China's energy derivatives system." Said Jiang Yan, secretary of the Party Committee and Chairman of the Shanghai Futures Exchange.
Compared with standardized crude oil futures contracts, crude oil options contracts give holders the right to buy or sell crude oil at a fixed price on a specific date or any time before that date, without having to buy or sell. Therefore, it provides flexible and diverse investment options for investors with different needs.
The industry has generally recognized and welcomed the listing of crude oil options.
Zhu Fang, deputy secretary general of the China Petroleum and Chemical Industry Federation, said that the listing of crude oil options will further enrich crude oil price risk management tools, help the futures market function, improve the risk management capabilities of oil refineries, and promote the structure adjustment of the crude oil industry chain, which will improve the market competitiveness and international management level of China's oil refining enterprises.
Huo Jinsan, general manager of China United Petroleum Co., Ltd., believes that with the listing of crude oil options, the crude oil market spot, futures, and options will form a three-in-one organic pattern, thereby providing companies in China's crude oil industry chain with more diverse and refined risk management tools enhance the level of stable operation of enterprises and enhance their competitiveness.
International trader Freepoint Group Asia CEO Ouyang Xiuzhang said that for most overseas traders and overseas institutions, the cash margin system, position management and corresponding delivery procedures of crude oil futures contracts are all required Go through a relatively long learning and adaptation process. The introduction of crude oil options can effectively simplify margin and position management, reduce transaction costs while avoiding risks, thereby providing more investment opportunities and trading strategies. "This will encourage more global investors, especially overseas traders to focus on the Shanghai crude oil futures market, and further deepen the price discovery function of China's futures market."
Liu Yong, head of futures of Shantou Bo Petrochemical Co., Ltd., said that for entities involved in oil companies, listed crude oil options will improve management efficiency and optimize resource allocation. Shantou Bo will actively participate in crude oil options trading, flexibly and rationally use futures and options to escort the company's steady operation.
Transaction status is the most intuitive feedback on whether the market welcomes it. On the first day of China crude oil options listing, many Chinese and foreign companies and intermediaries including PetroChina International (Hong Kong) Co., Ltd., Trafigura Singapore Co., Ltd., China Merchants Securities, Mercurial Energy Trading Co., Ltd., and Furui Bo (Singapore) Co., Ltd. participated the first batch of transactions. As for morning session closed, a total of 2004 crude oil options had been traded, with a turnover of 25.59 million yuan.
A long way to go
“From the situation of listing on June 21 to the present, China’s crude oil options are operating in a good overall condition. Regardless of the government supervision level, participating companies and independent investors, they are very recognized. In the future, with the further increase in trading and investment enthusiasm, the overall market's trading conditions will be further enlarged in regions." Wang Hongying said.
However, "the current crude oil options market activity and the depth of traders' participation still have a relatively large room for improvement." Zhang Zheng pointed out. In fact, not only the newly listed crude oil options, but the entire Chinese futures market is at an early stage of development compared with Europe and the United States.
Although the development of China's futures market has entered its 31st year, the market size is still small. Up to now, the margin of China's futures market has just exceeded 1 trillion, which is not the same as that of developed countries such as Europe and the United States.
"In general, companies in many industries have really felt the importance of futures and other derivatives tools in managing price fluctuation risks. However, China's futures tools play the role of comprehensive enterprise risk management, including price prediction functions, which has not played its due role. The professional capabilities of futures investors and intermediary service agencies and the level of service to customers are still far from those of Europe and the United States." Wang Hongying pointed out.
"The types of risk management tools in China are basically the same as those in foreign countries, but they are mainly speculative, with limited activity and trader depth. Only looking at the current crude oil options trading and holdings are relatively low compared to foreign countries, and the implied volatility is relatively high. It needs further observation." Zhang Zheng pointed out.
In Wang Hongying's view, there are relatively few products listed on China's futures market, and the complete over-the-counter trading mechanism, including the construction of a credit mechanism, is in the initial stage of exploration and development. "Under this background, China's futures market should be fully opened to the outside world. On the one hand, we should go out and learn from the good experience of Europe and the United States. On the other hand, we should find ways to allow more global investors to enter China's trading market and upgrade the international influence products priced in RMB."
The diversification of products and the diversification of derivative trading instruments will be the main direction and trend of the reform and development of China's futures market. According to insiders of the Shanghai Futures Exchange, in the future, the main work of the Shanghai Futures Exchange is to continue to increase the supply of products, introduce products such as refined oil, and at the same time refine and deepen existing varieties, starting from the actual needs of physical industry risk management, and constantly improving variety system, and constantly optimize the system and mechanism.