You Can Quote Us on That, Part 2 – How to Trade CME FX Options Strategies

CME Direct, a futures and options trading platform from CME Group, makes trading options strategies simple and straightforward. Users can build their own options strategy, model the potential pay-outs in a strategy simulator, and anonymously request a price from the market – all on one screen. 

Users can then trade on a price, work a passive order, or add the strategy to their Watch List to stay informed of price developments throughout the trading day. Strategies Grids can also be used to monitor markets in options strategies submitted by other traders. 

The new ATM Straddle Grid in CME Direct provides an intuitive way for users to discover and trade exposure to implied volatility. Draft straddle strategies are shown ordered by days to expiry, with the straddle strike price being that which is closest to the underlying future. Users can then “activate” a straddle with one click, with electronic market makers immediately responding with two-sided prices.

If the underlying futures contract moves such that the shown strike is no longer that which is closest to ATM, cell(s) in the ATM column visibly change colour from orange to white and a refresh symbol appears – users can then refresh individual expiry dates or the entire run with the closest to ATM strikes.

Volatility traders use delta-hedged (or covered) options to gain exposure to implied volatility without being exposed to directional moves in the underlying future at trade inception. 

In CME Direct, options prices are displayed in premium with the equivalent implied volatility level shown alongside.

Traders can double-click on the implied volatility price (or right-click – create hedged strategy) to bring up an RFQ window auto-populated with the correct delta hedge. If they then choose to place a passive limit order for the “package” of the option plus its delta hedge, the equivalent implied volatility level is shown next to their premium order level.

Options strategies can also be accessed via a customers’ choice of third-party trading platforms, such as Exegy’s Metro platform. Robert Kallay, Director of Automated Trading Solutions at Exegy, believes volumes in spread trading will continue to increase relative to outright options:

“Creating, RFQing, and trading spreads gives market participants the ability to target the risk they do and do not want exposure to more precisely. Often, an added benefit is the bid/ask of spreads relative to the individual legs. You get the best of all worlds, trade exactly what you want with a tighter spread.

“Traders want to be able to quickly RFQ a spread needed at that moment or one they created and saved in the past. Metro’s tradesheets allow users to quickly build and save common spreads like butterflies and straddles as well as custom generic spreads with or without a vol leg (tied futures). With a click of the RFQ button, these spreads are sent to CME to be RFQ’d in the market.

“Equally important is being able to see what the rest of the market is RFQ-ing relative to your theoretical values. Metro’s RFQ viewer allows traders to see and interact with their spreads as well as ones being RFQ’d by other market participants. They can do this by click trading, quoting, and aggressing if the strategy meets the user’s defined criteria (delta, time to expiration, etc.).

“We focus on giving traders the tools they need to model their volatility surface, accurately evaluate risk, and execute quickly and efficiently. Spread creation and RFQ-ing is vital to the execution part of our offering.“

Another example of a third-party trading platform is TT from Trading Technologies.  Brian Muhr, TT’s Product Manager of Options and Data, said:

“TT’s options offering provides access to CME’s FX options. You can quickly and easily create customized strategies and send RFQs with a single click, with the choice to cover. TT offers the ability to view current FX options RFQs and the ability to view all associated Greek and theoretical values prior to execution directly from an order ticket or MD Trader.

“Additionally, TT offers synthetic order types specifically for options execution. One of which is TT OBV (Order by Volatility), which gives the trader ability to tie an order to a vol level rather than price and will re-price the order maintaining the user defined vol level. TT also offers TT Autohedger, which will hedge the option fills in parallel with its underlying asset based on the options delta.”