Key Takeaways With Craig

By Craig Bewick
AUG 04 2020

Normally, in our Key Takeaways section, we like to do a market recap and highlight a particular market or product that had an outsized price or volatility move or some other noteworthy characteristic.  While that will continue to be focus of our column, from time to time we are going to take the opportunity highlight the characteristics and mechanics of a new or existing CME Group product. 

To that end, we wanted to remind our users that, on August 31st, we are going to be launching the much requested options on Micro E-mini S&P 500 and Nasdaq-100 futures.  Like the very successful underlying futures, these options will be a smaller version of the E-mini options, allowing for more flexibility and customization in a trader’s notional exposure to these two benchmark indexes.  Like the existing E-mini options, the options on the Micros will tick in .25 index points for options with premium over 5 points and .05 for options trading at 5 points or below.  However, because the they are options on futures 1/10 the size of E-minis, the .25 tick size represents a dollar value of $1.25 rather than $12.50 in the Micro E-mini S&P 500 options and $.50 instead of $5.00 in the Micro E-mini Nasdaq-100 options.  At launch, we will list options that expire weekly (on Friday’s), at the end of each month and traditional quarterly expirations and these will be available on CME Globex from 5:00 PM-4:00 PM CT Sunday through Friday with a daily break between 3:15-3:30 CT.

Last Thursday’s move in E-mini Nasdaq-100 futures and options that we featured here provides us with a good case study to look a the difference between the “Micro” and “Mini” options.  Remember that heading into the equity cash market close the options expiring the next day were trading at very high volatility levels relative to deferred expirations, presumably at least in part due to the earnings releases from Apple, Amazon, Alphabet and Facebook that were scheduled for after the equity market close.  This elevated volatility level led to a price of 214 points or $4,280 on the at the money straddle that expired the next day.  That means, if you wanted to take a position of buying one ATM Call and Put on the E-mini Nasdaq-100 future, you would have to risk $4,280.  At 214 points, the same straddle in the upcoming options on Micro E-mini Nasdaq-100 would cost about $428. As it turned out, the earnings reports from those four companies were generally positive and the E-mini Nasdaq-100 futures price rallied by about 180 points; less than the 214 points the straddle was trading at.  Now, we’re not suggesting that if a trader had paid 214 points for the straddle that it was automatically a losing trade because there was still a day left to manage the position and the Put may have still had some extrinsic value, but it is a good lesson in the multi-dimensional nature of options and how implied volatility impacts the premium on an options trade and why a trader needs to pay attention to it.  Moreover, it is a good example of the additional flexibility that the options on Micro E-mini Futures will provide as is obvious by the reduction in risk capital required. 

Please find more information on the options on the Micro E-mini futures here https://www.cmegroup.com/activetrader/microemini-options/

ABOUT THE AUTHOR

Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

After 8.5 years with WH Trading LLC, Craig returned to CME Group as the Director, Client Development and Sales, working to educate and promote futures trading. Craig currently writes for InFocus Options Corner.

Connect with Craig at activetrader@cmegroup.com

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