Derivatives

Strategy Trading

Update : Nov. 17, 2011

1. Strategy Trading of Futures

From Inter-month Spread Trading to Strategy Trading

Strategy trading will become available for futures contracts. With this change, inter-month spread trading will come under strategy trading (for inter-month spread trading prices, please refer to the table below).
All combinations of listed contract months of the respective products are available for inter-month spread trading.

Product	Transaction Effected by Strategy Buy Order	Strategy Price
JGB Futures	Buy 1 unit of a nearer contract month and sell 1 unit of a farther contract month	Price of the nearer contact month - Price of the farther contract month
Index Futures(*)	Sell 1 unit of a nearer contract month and buy 1 unit of a farther contract month	Price of the farther contract month - Price of the nearer contract month

• (*)TOPIX futures, mini TOPIX futures, TOPIX Core30 futures, TSE REIT index futures, TSE sector index futures, and dividend index futures.

How Strategy Trading is Conducted

(Note)

• (*) Strategy price ＝ Price of TOPIX futures June contract month - Price of TOPIX futures March contract month
• (*) Strategy buy order ＝ Sell TOPIX futures March contract month, buy TOPIX futures June contract month
• (*) Strategy sell order ＝ Buy TOPIX futures March contract month, sell TOPIX futures June contract month

2. Strategy Trading of Options

Abundant Choice of 30 Types of Strategy Trading

Strategy trading of options allows market users to combine transactions in multiple options and execute them simultaneously.
30 types of strategy trading offer market users an abundant choice of combinations which can be used in accordance with a variety of investment strategies.
For a list of available types of strategy trading, please refer to the file below.

Types of Strategy Trading

Implied Function

The implied function in options trading is very useful (currently not available for futures trading). This function increases the probability of order execution by utilizing the liquidity of both individual contracts and strategy trading issues. There are two types of implied functions: implied-in and implied-out.

Implied-in: A function that generates a specific strategy bid/offer from multiple bids/offers in individual issues
Implied-out: A function that, when triggered by a bid/offer in an individual issue, generates bids/offers in other individual issues from a strategy bid/offer

(Reference)　Available Strategies for Implied Function

Type of Strategy Trading	Implied-in	Implied-out
Call (or Put) Spread	Available	Available
Call (or Put) Calendar Spread	Available	Available
Call (or Put) Diagonal Calendar Spread	Available	Available
Straddle	Available	Available
Strangle	Available	Available
Call (or Put) Butterfly	Available	Not available
Call (or Put) Ladder	Available	Not available
2x1 Ratio Call (or Put) Spread	Available	Not available

Delta Neutral Strategy Trading

Delta neutral trading is a type of strategy trading which combines transactions in an option and its underlying asset.
When a delta neutral trade is executed, a transaction in the underlying asset is executed according to the pre-designated ratio (delta) with respect to the number of options contracts effected through strategy trading. This characteristic allows users to easily conduct hedge transactions or execute complex investment strategies.
For a list of available types of delta neutral trading, please refer to the files below.

Types of Delta Neutral Strategy
Delta Neutral Strategy

Example

Butterfly + Underlying Asset Transaction

Step 1.

Select the issues. The example below illustrates a delta neutral trade which combines transactions in options on JGB futures and JGB futures.

• (*)The ratio indicates the proportion of the price and the number of contracts of each component issue.

Step 2.

A bid and offer for 50 contracts are placed at 0.03.

Step 3.

Full execution occurs. For the number of contracts executed for each issue, please refer to the tables below.

• (*)The number of contracts of the underlying asset executed shall be calculated and rounded off according to the formula: Number of options contracts executed x Delta value designated when the order book was generated

(Reference) In a delta neutral trade, the following information on the underlying asset shall be specified.

	Options on JGB Futures	TOPIX Options	Individual Securities Options
Underlying Asset	JGB futures (excluding mini JGB futures)	TOPIX futures (excluding mini TOPIX futures)	Underlying securities
Delta	Available values: 0.01-1.00 (1%-100%) (The number of contracts to be executed are determined according to the delta value designated here. E.g., When 100 contracts of delta neutral trading with delta value designated as 0.50 (50%) are executed: 50 units of the underlying asset (x trading unit) is executed.)
Price of Underlying Asset	Execution will be conducted at the underlying asset price designated when the order book was generated. However, if the underlying asset price designated when the order book was generated greatly deviates from the actual price of the underlying asset at the time of order placement, the order will not be accepted.