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 |
|