New investment opportunities open through options on bond ETFs

Options on fixed income exchange traded funds have launched on the Eurex Exchange, to meet the demands of end investors. For firms who have used these instruments under the 40 Act regime in the US, these provide a UCITS equivalent in Europe and they may lead to take up at first.

In some cases these options might be an alternative to using credit default swap index options for hedging or volatility strategies, in others a way to reduce pressure on capital reserves under Solvency II regulations by buying out-of-the-money puts, or for pension funds selling out of the money calls to generate yield enhancement.

Lee Bartholomew, global head of derivatives product R&D for fixed income and currencies at Eurex, and Ashley Curtis, head of FI distribution for iShares EMEA at BlackRock outline the opportunities these new instruments are creating for investors