J.P. Morgan (Asia): US equity indices enter technical correction, pay attention to the underlying reference of the options

J.P. Morgan (Asia) stated that the recent instability in global trade policies may have raised concerns about the economic outlook, leading to the three major US stock indices falling across the board yesterday (March 13). The S&P 500 index, which had reached a record high in February, retreated by more than 10% and entered a technical correction zone. The Dow Jones Industrial Average also came under pressure, falling more than 500 points, or over 1%, for a fourth consecutive day.

Given the recent volatility in the US stock market, many investors may choose to deploy US stock index options and futures.

However, investors should note that US stock index options and futures track the relevant futures rather than the underlying stocks. Futures trading hours are from 6am to 5am Hong Kong time (Eastern Time), so there may be changes in the futures price in the hours after the US market closes and before the Hong Kong market opens. When the issuer quotes the price of the options and futures in the Hong Kong trading hours, it reflects the change from the reference price at 4pm the previous afternoon (when the options and futures closed) to the current price, rather than the overnight closing performance of the US stock index.

Therefore, if the US stock index experiences a significant overnight fluctuation, the performance of the options and futures may not be as expected.

For example, the E-mini Dow Jones futures were trading at about 41,200 points at 4pm Hong Kong time yesterday, and closed at about 40,800 points during the US trading session. However, the E-mini Dow Jones futures rebounded to about 41,000 points today (14 March) when the Hong Kong market opened. The price of the US stock index options and futures reflects the change from the reference price at 4pm the previous afternoon to the current price. Since the futures fell by about 200 points (from 41,200 points to 41,000 points) during this period, the price change of the relevant options and futures reflects this 200-point decline.