Single Stock Options: A Vibrant Sector of the Japanese Market. March, 2014 Japan Exchange Group

Single Stock Options: A Vibrant Sector of the Japanese Market March, 2014 Japan Exchange Group

201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 201307 201308 201309 201310 201311 201312 201401 1W 201401 2W 201401 3W 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 201307 201308 201309 201310 201311 201312 201401 1W 201401 2W 201401 3W Retail is Participating More The TSE is teaming up with retail brokers to regularly conduct SSO seminars attended by hundreds of individual investors. % 50.00 40.00 30.00 20.00 10.00 0.00 Put 29% Securities Firms Business Firms Individual Investors Foreign Investors % 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Call 52% 2013 14% 5% Source: Tokyo Stock Exchange Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 5

Spreads Are Getting Tighter 160 140 120 100 80 60 40 20 Price Nikko Exchange Traded Index Fund 225 (Call) 0 9:00 10:00 11:00 13:00 14:00 15:00 Price 100 Toyota Motor Corporation (Call) 90 80 Aug 12 Feb 17 70 60 50 40 30 20 10 0 9:00 10:00 11:00 13:00 14:00 15:00 Source: Tokyo Stock Exchange Aug 12 Feb 17 Price 12 10 Price 50 40 30 20 10 8 6 4 2 Sony (Put) Aug 12 Feb 17 0 9:00 10:00 11:00 13:00 14:00 15:00 Aug 12 Feb 17 0 9:00 10:00 11:00 13:00 14:00 15:00 On-auction spread trends for ATM options on the day after SQ days Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 6

Books Are Getting Deeper Put Book for Mitsubishi UFJ Financial Group (8306) Call Book for Mizuho Financial Group (8411) Ask Ask Ask 100 100 Ask 500 800 500 800 50 200 Bid Bid Bid 2013/8/12 2014/2/5 2013/8/12 Bid 2014/2/5 On-auction spread trends for ATM options on the day after SQ days Source: Tokyo Stock Exchange Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 7

Japanese Stock Option Specs Similar to US Trading Times* 9:00~11:30 12:30~3:10 (a.m.) Closing (from 3/24): 11:30~11:35 3:10~3:15 Exercise Number/ Increments Number: 2 ITM, 2 OTM, 1 ATM; Additional as requ. Increments: Differ according to price Different than US Required Margin Calculated by SPAN Available Contracts Closest 2 serial Closest 2 quarterly (Mar, Jun, Sep, Dec) Last Trading Day Business day before 2 nd Friday of every month Type of Exercise European Trading Lots 1 lot (i.e. 1 option = 1 lot of underlying, which can range from 1 to 1000 shares) Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 9

Japanese Stock Option Specs: Trading Times Closed Pre-Open Continuous auction Closing auction Restricted Open Investors are most likely to get the best prices during the continuous auction session, as market makers are not obligated to provide quotes during the closing sessions. Many times quotes will start showing up on the order book during the continuous auction at around 9:30 during the morning session and around 12:45 during the afternoon session. 8:00 9:00 11:30 11:35 12:05 12:30 15:10 15:15 Auction Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 10

Japanese Stock Option Specs: Available Contract Months Q: What contract months can I trade? A: The closest two serial months as well as the closest two quarterly months. Ex) What contracts can I trade today (March 14)? Last trading day for Mar 2014 contracts Apr 4 May 月 Jun Jul Aug Sep Oct Nov 3/13 On March 14, investors can trade contracts expiring in April, May, June and September 2014. The longest possible contracts are for 8 months. Be aware that contracts for the two nearest serial months will likely have the highest liquidity, however, as these are the contracts that market makers are obligated to display quotes for. Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 11

Japanese Stock Option Specs: Strike Prices Q: What strike prices can I trade? A: Strike prices ranging from about 10% to 20% above and below the base price. First Trading Day 5 strike prices (2 ITM, 1 ATM, 2 OTM) will be set around yesterday s closing price. Yesterday s closing price = \2000 2,400 2,200 2,000 1,900 1,800 Price is \2000 or above, so increment = \200 Price is below \2000, so increment = \100 Later Trading Days New strike prices will be set depending on stock price movements. New strike prices will be set based on the previous day s base price to ensure that at least one strike price above and below the base price is tradable. Yesterday s closing price = \2200 2,600 2,400 2,200 2,000 1,900 1,800 Additional Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 12

Options With Recent Tight Spreads Due to Market Making Tier 1 Underlyings Nikko Exchange Traded Index Fund 225(1330) 10 share lot SONY CORPORATION (6758) 100 share lot TOYOTA MOTOR CORPORATION (7203) 100 share lot Mitsui & Co., LTD.(8031) 100 share lot Sumitomo Mitsui Financial Group, Inc. (8316) 100 share lot Tier 2 Underlyings TOPIX Exchange Traded Fund (1306) 10 share lot JAPAN TOBACCO INC. (2914) 100 share lot Seven & I Holdings Co,. Ltd. (3382) 100 share lot Takeda Pharmaceutical Company Limited (4502) 100 share lot KOMATSU LTD. (6301) 100 share lot SOFTBANK CORP. (9984) 100 share lot 22 other stocks Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 14

Options With Recent Tight Spreads Due to Market Making The following is a list of ATM options expiring within a month for which the bid-ask spread is 40bps or below (as of Jan. 21) Underlying Underlying Name Expiration Strike Price Option Type Underlying On-auction spread Spread/underlying Code Price (JPY) price (%) (P) (B) (B)/(P) 1330 Nikko Exchange Traded Index Fund 225 2014/2/13 16000 Put 16170 32.0 0.20% 1330 Nikko Exchange Traded Index Fund 225 2014/2/13 16000 Call 16170 33.0 0.20% 1306 TOPIX Exchange Traded Fund 2014/2/13 1300 Put 1321 3.0 0.23% 1306 TOPIX Exchange Traded Fund 2014/2/13 1300 Call 1321 3.0 0.23% NIPPON STEEL & SUMITOMO METAL 2014/2/13 Put 5401 CORPORATION 325 336 1.0 0.30% 8306 Mitsubishi UFJ Financial Group, Inc. 2014/2/13 650 Call 671 2.0 0.30% 8316 Sumitomo Mitsui Financial Group,Inc. 2014/2/13 5500 Call 5284 16.0 0.30% 2914 JAPAN TOBACCO INC. 2014/2/13 3200 Put 3231 10.0 0.31% 2914 JAPAN TOBACCO INC. 2014/2/13 3200 Call 3231 10.0 0.31% 4502 Takeda Pharmaceutical Company Limited 2014/2/13 4800 Call 4837 15.0 0.31% 7751 CANON INC. 2014/2/13 3200 Put 3215 10.0 0.31% 7751 CANON INC. 2014/2/13 3200 Call 3215 10.0 0.31% 8316 Sumitomo Mitsui Financial Group,Inc. 2014/2/13 5500 Put 5284 17.0 0.32% 4502 Takeda Pharmaceutical Company Limited 2014/2/13 4800 Put 4837 16.0 0.33% 6301 KOMATSU LTD. 2014/2/13 2000 Put 2087 7.0 0.34% 6301 KOMATSU LTD. 2014/2/13 2000 Call 2087 7.0 0.34% 3382 Seven & I Holdings Co.,Ltd. 2014/2/13 4200 Put 4264 16.0 0.38% 3382 Seven & I Holdings Co.,Ltd. 2014/2/13 4200 Call 4264 16.0 0.38% 8604 Nomura Holdings,Inc. 2014/2/13 800 Call 792 3.0 0.38% 1605 INPEX CORPORATION 2014/2/13 1300 Put 1299 5.0 0.38% 1605 INPEX CORPORATION 2014/2/13 1300 Call 1299 5.0 0.38% 7203 TOYOTA MOTOR CORPORATION 2014/2/13 6500 Call 6300 25.0 0.40% 8058 Mitsubishi Corporation 2014/2/13 2000 Put 2005 8.0 0.40% 8058 Mitsubishi Corporation 2014/2/13 2000 Call 2005 8.0 0.40% 9437 NTT DoCoMo,Inc. 2014/2/13 1800 Call 1746 7.0 0.40% 4503 Astellas Pharma Inc. 2014/2/13 6000 Put 6210 25.0 0.40% Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 15

Short-Term Trading Employing Leverage Intraday options trading enables higher leverage than margin transactions with no required margin deposit. Options with particularly small spreads such as those on the previous page provide substantial return opportunities even if the underlying stocks move just 1% during the day. Many stocks with tight spreads provide intraday trading opportunities if investors are able to create a position at the offer price and unwind at the bid price after favorable price movements. There is also almost no time decay intraday, so investors can take advantage of the leverage embedded in options with virtually zero time decay cost NOTE: Intraday options trading is exceptionally risky and is ONLY recommended for VERY EXPERIENCED investors with HIGH risk-taking ability and tolerance Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 16

Actual Trading Example Comparison between trading Toyota stock and Toyota options Option Price 160 140 120 100 Buy @ 85 Ask/Bid trends in Toyota Mar 14 6000 Calls (Feb. 18th) Sell @ 5945 Sell @ 117.5 Stock Price 6000 5950 5900 80 60 40 20 Buy @ 5797 JPY 5797 100 Shares =JPY 579,700 If sold at that day s high price: (5945-5797) 1 100 = JPY 14,800 gain Total return = approx. 2.6% Purchase 1 option at JPY 85 JPY 85 100 Shares 1 Lot = JPY 8,500 If sold at that day s high price (117.5-85) 100 1 = JPY 3,250 gain Total return = approx. 38.2% 15x greater return Ask Bid 現物株 Underlying stock 0 9:00 9:30 10:00 10:30 11:00 11:30 13:00 13:30 14:00 14:30 15:00 5850 5800 5750 5700 NOTE: Intraday options trading is exceptionally risky and is ONLY recommended for VERY EXPERIENCED investors with HIGH risk-taking ability and tolerance Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 17 Source: Tokyo Stock Exchange

Check Out Implied Volatilities On Our Option Chart kabuop chart GO Options with largest IV increases and decreases are updated everyday! You can also download past HV, IV, settlement prices and other data in CSV format! Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 18

Historical Price Movements are Also Available Select the underlying code from the dropdown menu and click on Search to bring up recent settlement price and underlying price charts for the closest contract month. You can also bring up charts for other contract months and time periods. 1 2 Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 19

Increased Liquidity Over the Last Year Liquidity level increased following the below events. Nikkei225 (JPY) 18,000 16,000 14,000 12,000 10,000 Trading Value Nikkei November 14, 2012 Prime Minister Noda resigns April 4, 2013 BOJ announces new monetary policy September 8, 2013 2020 Tokyo Olympics decision Trading Value (Trillion Yen) 7 6 5 4 8,000 6,000 4,000 Average 1.10 trillion yen Average 1.99 trillion yen Average 2.75 trillion yen 3 2 2,000 1 0 0 Source: Bloomberg, Tokyo Stock Exchange Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 21

JPX the Largest Exchange Group in Asia. With the business merger completed on January 1st, 2013, Tokyo Stock Exchange and Osaka Securities Exchange embarked on a new era as Japan Exchange Group. The cash markets of the two exchanges were successfully integrated in July of this year, enabling investors to trade virtually all equities in Japan on a single platform. Market Operating Companies TSE OSE Regulation Clearing Cash Equities Market Derivatives Market Self regulatory Organization Clearing Organization Derivatives Market March 24 th 2014 Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 22

More convenient trading SSOs will be tradable on the same platform as Nikkei225 Futures and Options beginning 24th March. Nikkei 225 Options traders will be able to trade single stock options with no additional system investment, making stock options a more attractive product. J-GATE (OSE: OMX CLICK) Tdex+ (TSE: Liffe-connect) TOPIX Futures, Options JGB Futures, Options Single Stock Options Nikkei225 Futures, Options TOPIX Futures, Options JGB Futures, Options Single Stock Options OSE DJIA, REIT, TOPIX Core30 Futures 3/24~ CNX Nifty Futures 4/7~ SL-JGB Futures Dividend Index Futures Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 23

Japanese Stock Option Specs: Strike Price Increments Base Price of Underlying Increment At or above Below JPY 500 25 500 1,000 50 1,000 2,000 100 2,000 5,000 200 5,000 10,000 500 10,000 50,000 1,000 50,000 100,000 2,500 100,000 200,000 10,000 200,000 500,000 20,000 500,000 1,000,000 50,000 1,000,000 2,000,000 100,000 2,000,000 5,000,000 200,000 5,000,000 10,000,000 500,000 10,000,000 20,000,000 1,000,000 20,000,000 50,000,000 2,000,000 50,000,000 5,000,000 Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 24

Any other questions? Contact us! mkt-biz@jpx.co.jp Disclaimer : The descriptions in this publication are intended solely for the purpose of providing information on futures and options. Losses may be incurred due to fluctuation of prices of futures and/or options, etc. and the entire deposited margin or a portion of such may be lost. Losses may also exceed the deposited margin. Investors must carefully review the documents provided by their financial services provider before trading futures and/or options, and must trade on their own responsibility based on their own judgment only after fully understanding the product qualities, the trading mechanism, relevant fees, the risk involved, etc. While every effort is taken to ensure the accuracy of the information contained in this publication, Japan Exchange Group, Inc. and its subsidiaries shall not guarantee and be liable for any damages caused by any errors or omissions in this publication. Japan Exchange Group, Inc. and its subsidiaries reserve the right to change the contents of this publication without prior notice. Copyright C Japan Exchange Group, Inc. 2014 All rights reserved. Copyright 2014 Japan Exchange Group, Inc. and/or its affiliates. All rights reserved. 25

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