XJO - Bear Posts only (Factors which might cause the markets to fall), page-23301

How would the changes affect options trading?

ChatGPT said:

Excellent question — the ASX opening and post-close changes will subtly but meaningfully impact options trading in several ways. Let’s break this down into practical layers:

1. Faster Price Discovery at the Open

Previous Setup:

• The staggered open meant that index options (like XJO) and equity options could have delayed or uneven underlying price updates.

• Option market makers had to cautiously widen spreads at the open until underlying prices fully settled.

New Setup:

• Simultaneous opening across all equities delivers faster, synchronized price discovery.

• Option market makers can tighten spreads sooner because the underlying cash market becomes immediately reliable.

• Higher early liquidity is likely, which benefits option traders who used to sit out the first few minutes waiting for stable pricing.

Impact:

• Lower early bid-ask spreads.

• ⏱️ Earlier entry opportunities.

• Potentially higher opening volumes as confidence improves.

2. More Accurate Option Pricing at the Open

• The old staggered system caused temporary price dislocations where options might be mispriced for 5–9 minutes.

• With the unified open, theoretical option prices (Greeks and IV calculations) will now more accurately align with the cash market immediately.

3. Post-Close Trading Effects

Key Point:

• Options themselves are not traded in the post-close session.
  Only underlying equities can be traded at the closing price.

But… the ripple effects:

• Options settlement relies on the underlying close.
  The new post-close session may slightly adjust the final closing volume, but the closing price is locked after the CSPA, so the official settlement price is not affected.

• Large positions can now be balanced post-close in the underlying.
  This could reduce some of the last-minute scramble to hedge delta exposure during the final auction.

️ 4. Hedging Adjustments: Safer for Market Makers

• Market makers with open option positions who couldn’t fully delta-hedge by close now have a new window to adjust using post-close trades.

• This could:

  • Reduce overnight risk for liquidity providers.

  • Allow cleaner book management with less urgent EOD hedging pressure.

5. Closing Auction Strategies

• The closing auction (CSPA) still determines expiry settlement prices for key index options (like XJO options) on expiry days.

• No change to this mechanism, but the post-close session provides a safety net for players to:

  • Adjust stock positions.

  • Execute final touches to gamma scalps after the fact.

• Watch out: On expiry days, some traders may try to use the post-close to mop up residual risk positions in the underlying.

Summary Table

	Impact Area	Old Process	New Process
1	Opening Liquidity	Gradual, fragmented	Immediate, unified
2	Option Pricing Accuracy	Delayed alignment	Instant alignment
3	Early Spread Widths	Wider at open	Expected to tighten faster
4	Post-Close Trading	Not available	Now usable for final hedges (stocks only)
5	Settlement Prices	Set in CSPA	Unchanged
6	Hedging Flexibility	Limited post-close hedging	Now possible via post-close session

Strategic Takeaways:

• Option traders can act earlier and with more pricing confidence at the open.

• Market makers can reduce early spreads, which may benefit retail traders.

• Closing strategies remain critical, but now there’s less urgency since the post-close gives a tiny breathing room.

• Watch for changes in opening and closing liquidity patterns — new arbitrage or scalping windows may open.