What is the difference between daily and monthly options? Learn about the unique features, benefits, and considerations of both daily and monthly options, allowing you to make informed decisions aligned with your trading objectives.

Foundations of index options

Before we investigate the differences, an understanding of index options is crucial. Index options are derivatives based on the value of underlying indices like the CAC 40, the FTSE 100 or the S&P 500. These financial instruments give the holder the right, but not the obligation, to buy (in the case of call options) or sell (in the case of put options) the index at a predetermined price, known as the strike price, before the option expires. The main appeal of index options derives from the ability to offer clients exposure to the broader market or specific sectors, enabling strategies ranging from hedging and income generation to speculative bets on market directions.

Daily index options: a snapshot

Daily index options are a relatively recent innovation designed to cater to the needs of traders seeking to capitalise on short-term market movements. These options have an expiration period of just one trading day, meaning they expire at the end of the trading session on their expiry date. This characteristic gives daily index options a high degree of flexibility and responsiveness to market volatility, making them an ideal tool for traders aiming to exploit daily market fluctuations.

Key characteristics of daily index options:

• Short lifespan
  Their one-day lifespan demands a proactive trading approach, with strategies often executed and unwound within the same trading day.
• High sensitivity to market movements
  Daily options are particularly sensitive to immediate market news, economic reports, and geopolitical events.
• Rapid time decay
  The value of daily options erodes quickly, a factor that traders must diligently manage.

Monthly index options: an overview

Monthly index options, the traditional format of index options, have a longer time frame, typically expiring on the third Friday of the expiry month. This duration gives traders and investors the flexibility to engage in medium- to long-term strategies, including hedging positions over an earnings season, capitalising on anticipated macroeconomic trends, or generating income through premium collection strategies like covered calls or cash-secured puts.

Key characteristics of monthly index options:

• Longer duration
  They allow a broader window for the realisation of market predictions or hedging strategies.
• Lower time decay rate
  While all options experience time decay, monthly options do so at a slower rate compared to their daily counterparts, offering more leeway in timing decisions.
• Versatility in strategies
  The longer timeframe allows for a wider range of strategies, from simple directional investments to complex spreads and combinations.

Comparative analysis: daily vs. monthly index options

Time horizon and decay 

The main difference between daily and monthly index options lies in their respective time horizons. Time decay, or theta, is a critical factor in options trading, representing the erosion of an option's extrinsic value as expiry approaches. Daily options are characterised by an accelerated time decay, which can significantly impact profitability if the market does not move as anticipated. Daily options cater to traders with a short-term focus, who want to navigate the market's day-to-day volatility. Monthly options, benefiting from a longer life, decay far more gradually, giving traders more flexibility to manage or adjust their positions. Therefore, they are better suited to strategies with a longer view, requiring less frequent monitoring and adjustment.

Risk and reward dynamics

Daily index options offer the potential for rapid gains, reflecting their high sensitivity to short-term market movements. However, this comes with a heightened risk profile, including the possibility of totally losing your premium in a single day. Monthly options, while still risky, provide a more moderated risk-reward balance, with time to recover from adverse market movements or to adjust strategies as conditions evolve.

Impact of time decay

Time decay, or theta, is a critical factor in options trading, representing the erosion of an option's extrinsic value as expiry approaches. Daily options are characterised by an accelerated time decay, which can significantly impact profitability if the market does not move as anticipated. Monthly options, benefiting from a longer life, decay far more gradually, giving traders more flexibility to manage or adjust their positions.

Liquidity and market depth

Liquidity, or the ease with which an asset can be bought or sold in the market without affecting its price, varies between daily and monthly options. Generally, monthly index options have greater liquidity due to their established presence and broader utilisation by a diverse selection of market participants. Daily options, though growing in popularity, may sometimes face liquidity challenges, particularly for less widely followed indices or out-of-the-money strikes. To counter and reduce this risk, so-called market makers provide tradable prices to the market. Market makers are active in both daily and monthly options.

Strategic flexibility and complexity

The strategic applications of daily and monthly index options differ significantly. Daily options are often used for straightforward directional plays or very short-term hedges. In contrast, the extended timeframe of monthly options accommodates a wider variety of strategies, including those that benefit from the passage of time, such as iron condors, butterflies, and calendar spreads.

The choice between daily and monthly index options is not just a matter of preference but a strategic decision aligned with the trader’s trading style, risk tolerance, and market outlook. Traders and investors must weigh these factors carefully, considering not only their personal trading philosophy but also the current market environment and their specific financial goals. As with all trading endeavours, a deep understanding of the instruments at hand, combined with disciplined risk management, is paramount to achieving long-term success in the world of index options trading.

More about daily index options:

How to find quotes for daily index options

What are daily index options?

As the 2024 AGM season concludes, a look back shows a period marked by adaptability, resilience, and innovation. Across Denmark, Norway, and Italy, Euronext Securities coordinated and supported over 550 AGMs, expanding beyond traditional in-person gatherings into virtual and hybrid formats. This AGM season has tested and highlighted new directions for shareholder engagement and corporate governance amidst changing global dynamics and shareholder expectations. Reflecting on the season, our experts identify key trends shaping the future of AGMs, focusing on the integration of technology, transparency, and stakeholder participation. The adoption of virtual platforms and the blend of physical and digital elements in hybrid meetings have broadened the scope of accessibility and inclusivity.

The season in figures:

• AGMs held: 550+ (2023: 425+)
• Highest online attendance at a hybrid AGM: 700+ (2023: 580+)
• Highest attendance at a physical AGM: 4,900+ (2023: 1,600+)

In Denmark, we facilitated over 229 annual general meetings, ranging from virtual to hybrid and large physical events. The physical general meeting in Denmark remains a highly valued occasion. Numerous companies continue to utilise the AGM as a marketing and branding platform. In Denmark, it serves as a means of nurturing a robust local investor culture, allowing smaller investors to demonstrate their dedication and involvement with the companies they have invested in.

In Italy, the team supported 190 general meetings. The preferred option remains having a designated representative act on behalf of all investors. However, we are also witnessing the return of physical meetings after a period during which nearly all meetings were held virtually due to Covid.

In Norway, 115 companies use the Euronext Securities system. Euronext Securities Oslo supported 14 AGMs directly, with the rest supported via our account operators.

Across Denmark, Italy, and Norway, we facilitated over 550 annual general meetings in 2024, demonstrating our commitment to supporting diverse formats from virtual to hybrid and large physical events. In Denmark, AGMs continue to be a cornerstone for fostering local investor engagement. Italy has seen a resurgence of physical meetings, highlighting a return to tradition after the pandemic. Meanwhile, in Norway, our collaboration with account operators has enabled seamless support for numerous companies. These efforts reflect our dedication to enhancing shareholder participation and corporate governance.

Nicholas A. Schulz, Head of Issuer & Tax Services, Euronext Securities

Navigating corporate communication and shareholder empowerment

As the AGM season of 2024 concludes, the lessons learned and trends observed provide a compass for navigating the evolving landscape of corporate discourse and shareholder empowerment.

Proactive ESG focus in Danish AGMs

During the current Danish AGM season, many companies are prioritising Environmental, Social, and Governance (ESG) issues on their agendas. This trend highlights a commitment to sustainability and responsible governance, driven by increasing investor demand for transparency and accountability. Stakeholders, including customers and employees, are also pushing for stronger ESG practices. By addressing ESG proactively, companies are managing risks, anticipating future regulations, and gaining a competitive edge.

Adding to this proactive focus, the Danish Parliament passed Bill L 107 on 2 May 2024, implementing the Corporate Sustainability Reporting Directive (CSRD) into Danish law. The law, effective from 1 June 2024, will be phased in gradually based on company size. The largest companies must integrate a sustainability report into their annual reports for fiscal years starting on or after 1 January 2024. Specifically, large companies, including publicly listed companies and state-owned enterprises with more than 500 full-time employees, will be required to submit their first sustainability report in 2025.

This new legislation mandates that Danish companies produce a sustainability report as an integral part of their annual report, specifically as a separate section in the management commentary. By aligning with these regulations early, Danish companies demonstrate their commitment to transparency and sustainable business practices, setting a benchmark for responsible corporate behaviour and positioning themselves as leaders in ESG performance.

Focus on SRD II regulation and GM notifications in Norway

In Norway, the recent AGM season has been significantly influenced by the implementation of the Shareholder Rights Directive II (SRD II) regulation and the associated General Meeting (GM) notifications. SRD II aims to enhance long-term shareholder engagement and improve transparency between companies and their investors. This regulation mandates greater disclosure of information, particularly concerning remuneration policies and related party transactions. Furthermore, regulatory changes have been made regarding how Norwegian companies are required to provide notifications ahead of their GMs, ensuring that shareholders are well-informed and able to exercise their rights effectively. This shift not only strengthens corporate governance but also promotes a more transparent and accountable business environment in Norway.

Looking at the figures from January to May we see that the number of SRD II registrations in Norway is 195 out of 280 general meetings, which equals a 70% usage rate. While the use of the SRDII infrastructure currently is lower than anticipated and hoped for, we are confident that more issuers will soon recognise the significant benefits of including the new SRD II infrastructure into their general meeting processes, and we expect this number to grow in the future.

In Norway, issuers have the option to use our GM Notice service to ensure SRD II compliance. Euronext Securities strongly encourages all relevant issuers to adopt the new SRDII infrastructure into their general meeting process. Euronext Securities Oslo can provide comprehensive support to issuers throughout this process. Our experienced teams will help you stay compliant and take full advantage of the new regulatory framework.

Focus on regulatory changes in the Italian market

In the Italian market, recent regulatory changes have garnered significant attention. On the general meeting front, Italy has introduced the possibility of conducting virtual general meetings through a single Shareholders' Representative. This modern approach aims to enhance accessibility and streamline the decision-making process. Concurrently, Italy is aligning its Increased Voting Rights (IVR) option with other jurisdictions, such as the Netherlands, allowing voting rights to be empowered up to 10x from a previous maximum of 2x. This adjustment is designed to strengthen shareholder influence and engagement. Many Italian companies are actively considering these new options and planning to adopt these changes before next year through dedicated extraordinary meetings that we expect to happen in autumn/winter 2024. These regulatory updates are poised to improve corporate governance and shareholder participation across Italy.

The ESG-friendly AGM

For the 2025 AGM season, issuers will have access to a new innovative Shareholder Register and Annual General Meeting (AGM) platform from Euronext Securities. This marks a significant leap towards modernising our services for issuers.

This project is set to redefine the way issuers and shareholders interact, with a special focus on streamlining General Meeting and Shareholder Register processes across Denmark, Norway and Italy.

The Shareholder Register and AGM platform is designed with sustainability and responsibility in mind. Euronext Securities recognises the growing importance of Environmental, Social, and Governance (ESG) considerations in corporate governance. The platform empowers issuers and shareholders to engage in AGMs with a focus on ESG principles, fostering dialogue and decision-making that aligns with sustainable business practices.

For more information about the new Shareholder Register and AGM platform, please visit the Euronext Securities website. We also invite you to download our recent eBook: “An ESG-Friendly AGM”.

Visit your local CSD to find out how we can support your AGM:

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Evolution in the Operation, Governance, and business Models of Exchanges: Regulatory Implications and Good Practices

As an operator of a group of exchanges, we call on IOSCO to recognise the diverse way in which regional capital markets are developed and exchanges are operated.

We ask that IOSCO acknowledges in its Good Practices the reality of exchanges operating within group constructs in Europe, maximizing efficiencies under applicable regulatory frameworks that ensure good governance, the management of risks and conflicts. 

Euronext’s contribution to consolidation

We have led the way in reducing fragmentation by making important strides in EU capital markets integration. Our deep single liquidity pool now spans seven European countries, with a diverse investor base trading via a single trading technology on the basis of harmonised rules. It is clear that market-driven initiatives such as these contribute to capital markets integration. 

As a true pan-European financial markets infrastructure provider across trading, clearing and settlement, Euronext helps overcome issues of fragmentation, providing benefits to investors and issuers alike.

Euronext suggestions with respect to the Governance of exchanges 

When exchanges choose to consolidate, supervisory practices should not prevent them from introducing group efficiencies that support their clients’ needs, delivering shareholder value. At the very least, there is a need to allow for further streamlining of group efficiencies: the concept of group application should be considered in this case too, and duplication of roles and divergence of requirements should be eliminated.

More information

Our full position on this report can be downloaded below. 
Also relevant is our view on the progress of the Capital Markets Union.

Download Euronext Reponse to the IOSCO Consultation Governance July 2024