CBOE to Relaunch Credit Event Binary Options (CEBOs) Contracts on March 8.
CHICAGO, Feb. 22, 2011 /PRNewswire/ — The Chicago Board Options Exchange (CBOE) announced today that on Tuesday, March 8, the Exchange will begin trading newly-designed Credit Event Binary Options (CEBOs) contracts.
Credit Event Binary Options contracts allow investors to express an opinion on whether a company will experience a “credit event” (bankruptcy). Due to inverse correlations between credit and equity markets, CEBO® contracts can be used as a hedging tool for individual stocks. The contracts also provide the advantages of price transparency available through a regulated exchange, currently unavailable in over-the-counter credit default swaps markets.
A CEBO contract has just two possible outcomes – a payout of a fixed amount if a credit event occurs or nothing if a credit event does not occur.
The CBOE, which first began trading single-name and basket Credit Event Binary Options in 2007, recently received SEC approval to amend the Credit Event Binary Options rules.
One change simplifies the terms of a payout for CEBO contracts, allowing CBOE to list CEBO contracts that specify bankruptcy as the only trigger for a payout.
The size of the CEBO contract payout if a credit event occurs has also been revised. If a bankruptcy occurs prior to expiration of the contract, the amount of the payout will be $1,000 per contract.
Initially, CBOE will offer ten single-name CEBO contracts for trading. Two of those contracts will be introduced on March 8, followed by eight on March 9:
Company Name CEBO Ticker Launch Date AK Steel Holding Corporation AKSC Mar. 8 Advanced Micro Devices, Inc. AMDC Mar. 8 Arvinmeritor, Inc. ARMD Mar. 9 American Axle & Manufacturing Holdings, Inc. AXLC Mar. 9 Hovnanian Enterprises, Inc. HOVC Mar. 9 Huntsman Corporation HUNC Mar. 9 MBIA Inc. MBID Mar. 9 The PMI Group, Inc. PMID Mar. 9 Smithfield Foods, Inc. SFDC Mar. 9 Tenet Healthcare Corporation THCC Mar. 9.
For contract specifications and other information about CEBOs, see http://www.cboe.com/credit.
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