* Short-term gold options to exercise into futures
* Physical settlement aiming boost value of product
* Move to take market share from OTC gold options
(Adds CME comment, paragraphs 4-6; open interest, paragraph 11)
By Frank Tang
NEW YORK, June 18 CME Group (CME.O) is allowing
investors in its short-term gold option contracts to take
delivery of physical bullion in a bid to increase the product's
appeal against over-the-counter gold options.
The biggest operator of U.S. futures exchanges said it will
amend the contract of its weekly gold options to let investors
exercise into futures contracts effective July 1, pending
approval from the U.S. Commodity Futures Trading Commission, CME
said in a notice late last week.
Prior to the change, the options, which were launched in
July last year on CME's COMEX metals platform, were settled by
cash only and physical delivery was not permitted.
“Based on customer demand, we made the decision to amend our
Short-Term Gold option contract to a physically delivered
contract," CME spokesman Chris Grams told Reuters.
"We believe this change will enhance the contract, making it
even more competitive and will attract over-the-counter traders
to the exchange,” he said.
Grams said that the CME has no plans to change other option
products at this time.
Chicago-based CME is trying to make the options more
attractive as some investors favor owning physical precious
metals as a safe haven in market turbulence.
Last October, in a similar move to woo investors who favor
physical metals, CME more than doubled the amount of physical
gold it can accept from its clearing members as collateral.
Dealers said that the CME was trying to gain market share
from the over-the-counter market, which offers investors gold
options with a wide array of expiration dates.
Each of the short-term options has a five-business-day
expiration period, and the exchange rolls out a new option
contract with a new date of expiry on a daily, continuous basis.
The one-year-old product currently has no open interest, CME
Anthony Neglia, president of Tower Trading and a COMEX gold
options floor trader, said that market makers are reluctant to
provide liquidity for the high-risk, short-term product, which
has failed to garner interest from both institutional and retail
"Statistically, 95 pct of the options go out worthless, so
who’s going to take the first step" to trade them, Neglia said.
He added there was some interest for the product among trading
In a sharp contrast to the weekly options, open interest of
CME's popular monthly COMEX gold options currently totals well
over 1 million contracts, with more investors using options to
bet on the upside in gold due to economic uncertainty.
(Editing by Alden Bentley)
((Frank.Tang@thomsonreuters.com)(+1 646 223 6126)(Reuters
Keywords: GOLD CME/OPTIONS
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