China has launched stock options trading for the first time on the Shanghai bourse on Monday, in a milestone move toward innovating the country's equity markets by widening the financial derivatives portfolio and better managing risk.

The launch fills in a gap in the country's stock exchange portfolio and marks "a new step in the establishment of a multi-tiered capital market," Yao Gang, the deputy chairman of market regulator China Securities Regulatory Commission (CSRC), said at a ceremony in Shanghai on Monday.

The options are based on an exchange-trade fund (ETF) that tracks the 50 most heavily-weighted stocks on the Shanghai Stock Exchange (SSE50), which typically serves to guide investors into large-capitalized stocks. The regulator is essentially guiding investors into blue chips.

Initially, there are four expiration months available for trading of the options - March, April, June and September - with 40 contracts listed.

An option is a contract that gives investors the right, but not obligation, to buy or sell a product at a specific price at a specific time in the future. A futures contract requires the exercise of the contract.

Currently, stock options are available across more than 50 stock exchanges globally, read a post on the CSRC's official Sina Weibo account, which revealed that among the world's 20 largest bourses, only the Shanghai and Shenzhen stock exchanges had not launched any equity-linked options.

The options would help enhance price discovery and broaden risk management portfolios especially for institutional investors, Li Daxiao, the chief economist of Shenzhen-based Yingda Securities, told the Global Times on Monday.

With the introduction of the options, future trends in the capital markets currently based on trading in stock index futures and margin trading - two main types of financial derivatives traded in the country's capital markets - are expected to be more predictable, Dong Dengxin, the director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Monday.

Lifted by optimism surrounding China's first-of-its-kind options, the benchmark Shanghai Composite Index inched up 0.62 percent or 19.22 points to close Monday at 3095.12 points, ending last week's slump.

However, market watchers noted the stock options are unlikely to sustain the stock markets, as trading in options would only be tepid at the start, due in part to the relatively high threshold of participation in the derivative product.

As the majority of transactions on the Chinese mainland stock markets are done by individual investors, "investing in stock options would be challenging if they have not done enough research," Li said.

Addressing concerns over increased risk exposure, the CSRC's Yao said that the options could be a double-edged sword which serves both as a hedge tool and a greater risk, urging all market players to be vigilant.

Plans to trade options for individual stocks have yet to be disclosed, a sign that the regulator has adopted a cautious approach.

Reasons behind the choice of trading options, initially based on the ETF that tracks the SSE50 index, include the fact that the ETF, composed of a basket of stocks, normally experiences fewer fluctuations compared to an individual stock, and can better avoid the risk of insider trading, said another statement posted Monday on the CSRC Weibo account.

Components in the SSE50 index have an average price-to-earnings ratio of 10 times, compared with 17 times for the broader market.

But it may not take long for regulators to approve individual stock options, which would decidedly help boost interest, Dong said.

He said he believes individual stock options trading would be put in place "later this year or next year."

Experts have also said the rollout of the options would add weight to the Shanghai-Hong Kong Stock Connect scheme.

More international investors would be attracted to mainland bourses following the availability of the options, said Dong, adding that trading of equity options accounts for roughly 40 percent of the overall derivative transactions in Hong Kong.