Report highlights

Are the S&P 500 and Nasdaq-100 equity indices on the cusp of a new cycle in increased volatility? As inflation stubbornly holds above the Federal Reserve’s 2% target, the inverted Treasury yield curve could be showing potential signs of an economic downturn.

Perhaps options on E-mini Russell 2000 futures are signaling a warning sign. Implied volatility on options on Russell 2000 Index futures could be reflecting investor uncertainty as it moves decidedly higher from its low of September 2023.

The S&P 500 is near its all-time high still above 5,000, driven largely by a handful of mega-cap companies, while the Russell 2000, which comprises small- and medium-sized companies, has fallen by about 5% from its peak in May.

E-mini Equity Index options at CME Group can help investors address concerns over risk with options on four major U.S. equity indices that have deep around-the-clock liquidity, offer capital efficiencies, ease of execution and comprehensive option expiries.

E-mini options on futures for S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial indices can help investors navigate spikes in volatility and spreads between indices.

Figure 1 shows three-month implied at-the-money (ATM) volatility for E-mini options on futures for the S&P 500, Nasdaq-100 and the Russell 2000, to demonstrate how important it can be to select the right risk management strategy using options on the appropriate Equity Index. For example, while the Nasdaq-100 and S&P 500 futures are rallying, the Russell 2000 has been declining amid increased volatility. As a result, average daily volume (ADV) in E-mini Russell 2000 options has nearly doubled at the beginning of 2024 as seen in Figure 2.

Figure 1

Figure 2

Global liquidity continues to grow

The growth in options on Equity Index futures at CME Group has been extraordinary. Visually the ADV growth of options has been doubling every few years as presented in Figure 3.

Table 1 shows the rapid growth in E-mini options trading in all three indices.

Date/ADV Russell 2000 Nasdaq 100 S&P500
2017 719 11,448 605,260
2018 2,470 11,468 763,572
2019 2,448 9,542 601,572
2020 2,906 16,205 680,624
2021 6,197 29,580 712,439
2022 6,249 49,189 1,153,696
2023 8,370 68,601 1,344,746
2024 14,674 83,502 1,542,809


From 2021 to 2024, options ADV on S&P 500 Index futures doubled while options ADV on Nasdaq-100 Index futures nearly tripled. Options ADV on Russell 2000 Index futures nearly doubled in the last year alone. In addition, global liquidity has picked up. In 2024, 15% and 25% of option volumes for the S&P 500 and Nasdaq-100 Index futures, respectively, traded during non-U.S. hours, reflecting increased investor participation from Asia and Europe. E-mini options allow traders to appropriately manage equity index risk with growing around-the-clock liquidity.

While no one reason can explain the increase in volumes, CME Group has undertaken extensive measures to further improve the liquidity of E-mini options. Among the keys to many initiatives include expanding the array of expiries to every day of the week, spanning the nearest five weeks as well as enhancing non-U.S. hours session liquidity with a dedicated overnight market marker program. In addition, the trading ecosystem has been improved by changes to the E-mini S&P 500 options offerings such as reducing minimum block sizes for option blocks to 100 contracts per leg, reducing the tick size for options below 10 points of premium as well as improving delta hedging with the new Trade Market at Close. These improvements in liquidity and trading execution efficiencies all have accelerated growth in CME Group Equity Index options.

Figure 3

Ease of execution

Electronic execution of E-mini options is facilitated by the Globex trading platform at CME Group. This is evidenced by the distribution of electronic trading across these indices: Electronic trading on the Central Limit Order Book (CLOB) constitutes 99% of volume on E-mini Russell 2000 and Nasdaq-100 options, and 92% of E-mini S&P 500 options. 

During 2023, 40% of all volume was executed via strategies while the remaining 60% of option trades were outright option trades. The request-for-quote (RFQ) process allows the trader to create bespoke user-defined spreads and stage them in their own orderbook without disclosing size or direction, or a commitment to trade, and there is also the ability to tie a futures delta-hedge to the option strategy. This flexible and robust options strategy submission on Globex has driven the large growth of E-mini options volume executed in this manner.

For those that require execution of larger option trades on E-mini S&P 500 futures, option blocks are an efficient execution mechanism. With the ability to negotiate the entire trade privately and without the need to break up the transaction into the orderbook, block trades have been growing in size and frequency.

From simple to complex, and large to small, the CME Group execution venue is built to handle users’ requirements.

Complete option expiries

Growth in zero day to expiry options (0DTE) has been impressive at CME Group with YTD 2024 0DTE E-mini options ADV up 25% compared to 2023 ADV. Perhaps more importantly, volumes across all expiries continue to grow dramatically in addition to 0DTE expiries. CME Group continues to help clients manage their options exposure with a full range of E-mini expiries to best manage risk.

Figure 4: Option Days to Expiry Volumes

Capital efficiency: A case study

Capital efficiency can be substantial for options on E-mini futures. 

For example, assume a trader noticed that at the end of 2023, there was increased volatility and price weakness of the Russell 2000 compared to Nasdaq-100. This trader believed that with the market pricing in higher interest rates, the Russell 2000 index of smaller businesses would see lower prices, while the Nasdaq-100, which includes higher weights of stocks with artificial intelligence, would experience price stability or even higher prices.  

Using a common trading strategy of two put spreads seemed a sensible structure to benefit from their view of direction and volatility using E-mini options. The trader would buy an at the money (ATM) put and sell another out of the money (OTM) on E-mini Russell 2000 futures, while concurrently selling a put spread on E-mini Nasdaq-100 futures of similar ATM OTM puts. Such a structure provided the trader several benefits. 

  1. This put spread strategy limits the loss or gain to only the premium invested/sold and the index points of the spread. A long/short futures spread position could move outside the range; increasing both potential return and risk and would not capture the trader’s volatility view.
  2. The trader was able to position across specific Equity Indices. 
  3. Margin offsets between positions reduced costs for greater capital efficiency.
  4. The trader could specify the strikes and listing and stage it easily in Globex.
  5. The trader was able to select the ideal expiry to benefit from the dynamic of the trade.
  6. Given the different contract sizes, the trader used a hedge ratio of three E-mini Russell 2000 options for every one E-mini Nasdaq-100 option (index levels of 2,082.1 and 17,083.5 respectively). 

On December 26, 2023, the trader bought a put spread on the March 2024 expiry of the Russell 2000 futures by buying the 2,100 ATM strike and selling the 2,000 OTM strike. The trader also sold the Nasdaq-100 March 2024 futures expiry put spread by selling the 17,100 ATM put and buying the 16,500 OTM put. Accounting for the different contract sizes and the determined hedge ratio, the option payouts are as follows:

Figure 5: Put Spread Payouts

The trader staged the four-legged strategy in Globex using a request for quote (RFQ) and a month later, the trader closed the position by selling the Russell 2000 put spread and buying back the Nasdaq-100 put spread. Assume that each put spread has a net 0.35 delta, the payout for this strategy while considering the hedge ratio of three E-mini Russell 2000 options to every one E-mini Nasdaq-100 option is shown in Table 2:

Table 2: Options Put Spread Example

Date E-Mini Russell 2000 Long Put Spread (Index Pts.) E-Mini Russell 2000 future E-Mini Nasdaq-100 Short Put Spread (Index Pts.) E-Mini Nasdaq-100 future Premium Outlay ($)
1/26/2024 200.70 1,988.50 -122.75 17,527.00 -$7,580
12/26/2023 120.30 2,082.10 -213.00 17,083.50 -$1,755
  80.40 -93.60 90.25 443.50 $5,825

The trader had called the movement of the indices correctly. The E-mini Russell futures continued to move lower, while the E-mini Nasdaq-100 futures rose. The use of option strategies was a benefit as well. The increased volatility on the long Russell 2000 E-mini put spread helped offset the options decay. Impressively, the short put spread on the Nasdaq-100 benefited from the time decay. The use of options helped the trader limit his downside risk using option strategies and benefited from the continued decline of the Russell 2000 and gain in the Nasdaq-100. The holistic offering of options at CME Group allowed the trader to execute on their view of the equity indices and volatility.

CME CORE is an interactive margin calculator that helps clients with capital efficiency with multi-leg E-mini option structures. This helps customers clearly see their capital outlay and subsequent returns. For this option structure, CME CORE determined that the total initial margin was just under $3,300.

Use CME Group options on E-mini futures

With macro and economic events continually impacting capital markets, managing equity volatility with a valuable suite of options on E-mini futures allows traders and investors to select their desired index while benefiting from deep global liquidity, capital efficiency, ease of execution and full coverage of option expiries.

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.

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