Feedback
Short Dated Options on Long-Dated Fed Fund Futures
Contract Specifications | Frequently Asked Questions | Trading Calendar | Quote Symbols
CME Group has extended the 30-Day Fed Funds Options suite to include Fed Funds Mid-Curve options. These options, with a time to expiration of one to three months, have as their underlying instrument Fed Funds futures that expire six months and one year out. Because Fed Funds Mid-Curves are short-dated, they offer a low premium, high vega and time decay option alternative to existing Fed Funds options.
| Product | Open Outcry/Globex Symbol | Initial Contract Month | Expiration Date | Underlying Futures |
|---|---|---|---|---|
| 6-Month Mid-Curve | FF6/ZQ6 | July 2011 | Friday, July 29, 2011 | Jan-12 |
| 1-Year Mid-Curve | FF1/ZQ1 | July 2011 | Friday, July 29, 2011 | Jul-12 |
Features and Benefits of Fed Funds Mid-Curve Options
- Short dated option based on a deferred underlying futures contract spanning up to a year of FOMC meetings.
- Lower premium option alternative for anticipating future Fed policy shifts that features a desirable mix of high time decay (theta) and high convexity (gamma).
- Highly correlated with other short-term interest rates.
- Useful for managing risk associated with the changing credit costs for virtually any short-term cash instrument.
Fed Funds Mid-Curve Options Information
Contract Specifications
Frequently Asked Questions
Trading Calendar
Quote Symbols
The 30-Day Fed Funds futures and options are important risk management tools for anyone who wants to hedge against or speculate on changes in short-term interest rates brought about by changes in Federal Reserve monetary policy. They have long been regarded as an effective means of tracking market expectations of monetary action by the Federal Open Market Committee (FOMC).
Fed Funds Futures:
Provide trading opportunities and resources for the management of risk exposures associated with a variety of money market interest rates.
Fed Funds Standard and Mid-Curve Options:
Offer market participants an instrument with defined risk parameters that can be used to express a view on the likelihood of Fed policy changes.
Benefits
- Provide a gauge of market expectations about Fed action at future FOMC meetings
- Offer liquid tools to speculate on or hedge against changes in monetary policy
- Allow spreading against other short-term interest rate contracts in the CME Group suite of interest rate futures and options
- Offer trading in transparent markets with low transaction costs and virtual elimination of counterparty credit risk
The CME Group FedWatch tool lets you quickly gauge the market’s expectations of potential changes to the Fed Funds target rate. The CME Group FedWatch is based on 30-Day Fed Funds futures prices, which have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy. Access the FedWatch tool at www.cmegroup.com/fedwatch
