Equity markets are in a constant state of motion. Whether it’s earnings season or a new inflation reading, there is always a catalyst impacting equity securities and the individuals who trade them. Within the past year, the S&P 500 and the Nasdaq-100 reached all-time highs, and this heightened environment has created ample trading opportunities in equity markets. While potential trading opportunities can arise at any moment, when volatility is present, it becomes even more important for market participants to navigate such opportunities.

For investors with exposure to equity indexes, weekly options can be an efficient tool to manage risk when markets turn sideways. CME Group’s suite of equity options provides precision, flexibility, and the ability to trade contracts on a daily basis. Individuals can trade weekly options on any day of the week, meaning traders can more easily manage risk relating to market events or earnings announcements for constituents in the index. These features enable traders to capture such market opportunities as they arise and in a flexible manner.

Consider the scenario where Apple is about to release earnings guidance. Currently, Apple is the top constituent in the Nasdaq-100 Index. An individual may want to hedge the risk of an earnings surprise, while simultaneously expressing their opinion that the earnings announcement will have a positive effect on Apple’s stock price and thus the overall index. That individual could trade a Weekly Option on E-mini Nasdaq-100 Futures to express their opinion that positive earnings will boost the Nasdaq-100 Index, while simultaneously protecting themselves against potential losses.

For example, say it is October 3 and the third quarter just ended. Apple plans to announce their third-quarter earnings on Wednesday, October 12, after the market closes. An individual could trade a Week 2 Thursday Weekly Option on E-mini Nasdaq-100 Futures expiring on Thursday, October 13 to express their opinion on how the Nasdaq-100 Index will immediately react to the earnings news. In this hypothetical example, say the Nasdaq-100 closed on Wednesday at a level of 12,291. To protect against losses, the trader decides to buy a Thursday Weekly put option on E-mini Nasdaq-100 futures with a strike price of 12,250. The put options are offered on CME Globex at 335 index points per contract, meaning the maximum loss this trader would potentially face is the premium. If the trader decides to buy 1 put option, the premium, and thus his potential loss, will be $6,700 (335 index points per contract x 1 contract x $20 per index point).

In this way, the trader limits his losses if the Nasdaq-100 falls below its current trading level when reacting to Apple’s earnings.

Alternatively, say a trader is looking to speculate that equity markets will rise ahead of an upcoming Federal Reserve meeting. If the Fed meets on a Tuesday, the trader could utilize Tuesday Weekly options on E-mini S&P 500 futures and carry out a call spread to speculate on how the S&P 500 index will be impacted by the meeting.

Say the S&P 500 index is currently trading around 4,070. This trader believes the S&P 500 will rise around 2% on the day of the meeting to approximately 4,150. There are various strategies that could be deployed in this situation, but in this specific example, the trader decides to execute a call spread in order to reduce his capital outlay and simultaneously limit his risk.

To carry out a call spread, the trader could buy a Tuesday weekly call on E-mini S&P 500 futures at 4,000 and sell a Tuesday weekly call on E-mini S&P 500 futures at 4,105 both expiring on the day of the Fed meeting. On CME Globex, the call options are bid at 63 index points and offered at 65 index points per contract, meaning the individual will have a net gain of $100 ($3,250 - $3,150). This strategy allows the trader to express his opinion that the S&P 500 will rise as a result of the Fed meeting while limiting his losses in the event the opposite occurs.

These are just two examples of how weekly options on E-mini equity index futures can be flexibly used to manage short-term risk around market events.

The ability to trade weekly options every day of the week has bolstered growth in volume and open interest in recent months for both E-mini S&P 500 and E-mini Nasdaq-100 Weekly Options. The greater interest in weekly options indicates that there is an increasing need to hedge short-term risks.

It is impossible to time when markets have reached their peak, and similarly their trough, meaning it is vital that market participants have the proper tools in their toolbox at any given moment so they can react as opportunities arise. With the introduction of Tuesday and Thursday weekly options in 2022, traders now have daily contracts at their fingertips to deploy their strategies on the S&P 500 and Nasdaq-100 indexes.

CME Group’s equity index options provide numerous benefits to traders and weekly options provide flexibility to capture market opportunities as they arise. Weekly options are available to trade every day of the week for both Options on E-mini S&P 500 Futures and Options on E-mini Nasdaq-100 Futures. For more information on how to trade weekly options, visit cmegroup.com.

Whether equity markets are going up and down, traders can find numerous ways to trade these opportunities using CME Group’s suite of equity futures and options.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2024 CME Group Inc. All rights reserved.