E-mini S&P 500 (Globex code: ES) options blocks provide market participants with confidentiality while trading, reduced slippage and a flexible means to hedge large S&P 500 equity index exposures. As a result, ES option blocks have achieved steady growth and continue to afford greater opportunities to manage large-cap equity index risk.
Gaining traction
During the past year, ES options have averaged over 1.5 million contracts in volume each day.
Given the deep liquidity in ES options, option blocks provide market participants more ways to access this liquidity and express their opinion on the market direction of the S&P 500. As a result of this growth, ES option block volume is now around 8% of total ES option volume.
Given the ample liquidity of ES options, it is no wonder why ES option blocks are gaining momentum in the marketplace.
Features of trading ES option blocks
Option blocks allow market participants to place larger trades in a privately negotiated environment, complementing the benefits of electronic screen trading. Key features include:
- Capital efficiency and central clearing: Margin efficiencies can be realized by transacting ES option block trades at CME Group, where many traders maintain underlying delta hedges and positions. Additionally, futures and options could provide margin offsets and relief to charges commonly levied on OTC transactions (e.g., Basel, RWA, SLR).
- 24/7 trading: Traders have risk management flexibility around the clock.
- No breakup risk: Traders have the benefit of directly dealing with a single counterparty, providing greater efficiency.
- Complementary E-mini S&P 500 ecosystem: Market participants have access to complementary products at CME Group to manage dividend exposures and total return swap exposures, which present the opportunity for additional risk management and margin efficiencies across strategies.
The convenience and flexibility of privately negotiated trading allows traders to avoid information leakage when executing large transactions. Furthermore, ES option blocks offer participants the benefits of CME Group centralized clearing.
ES option blocks can also be executed as part of a delta-neutral transaction. This means that traders can use ES futures to execute a covered, delta-neutral block trade in ES options and as a result, experience zero slippage between their option blocks and the appropriate hedge. These delta-neutral ES option blocks may provide a more capital-efficient listed alternative to OTC combos.
Trading ES option blocks can also offer operational and margin efficiencies where traders have access to both blocks and on-screen trading. Additionally, no ISDA or CSA documentation is required when trading a covered futures and options block trade at CME Group, meaning reduced paperwork for participants.
With a variety of expirations, traders should have their needs met when trading ES option blocks. Specifically, on any given day, there are over 60 ES option expiries, with such expiries spanning five years, as illustrated below.
Trading ES option blocks provides a unique value proposition and traders can achieve numerous capital and operational efficiencies when adding ES option blocks to their portfolio.
About ES option blocks
E-mini S&P 500 options have a $50 multiplier and a minimum block quantity (MBQ) of 100 contracts per option leg. Option block trades at CME Group are 100% privately negotiated and reported to CME ClearPort via CME Direct (CMED).
Lastly, traders have access to Basis Trade at Index Close (BTIC) functionality, quoted as a basis to a given day’s cash index closing price, which can help options traders manage delta exposures.
The below graphic provides a snapshot of how ES option blocks have recently been traded at CME Group.
Dive deeper into Equity Index options on futures
Take advantage of around-the-clock liquidity and market depth with Equity Index options on futures at CME Group.
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.
