In the market microstructure literature, various pieces of statistics have been bandied about as definitive measures of liquidity, viz. bid/ask spread, book depth, etc. Each statistic only presents one facet of market liquidity. Taken in isolation, these statistics can be naïvely interpreted or misleading, and traders must look across multiple facets of the market when determining the most effective strategy and identifying the most capital-efficient and cost-effective liquidity pools.

For example, the liquidity of CME Group E-mini S&P 500 futures (hereafter ES) order book has recently been questioned in times of market stress. Isolated snapshots of the order book were usually presented as evidence. Given that ES consistently trades at, or near, a 1-tick increment, the liquidity taking and resultant reduction of book depth was presented as evidence of illiquidity in periods of high market volatility. The fact that a significantly higher volume of transactions had traded in the “less liquid” order book, because the book depth was being continually replenished in response to resting liquidity being taken, was usually glossed over.  

While other venues suggest superior and tighter displayed bid/ask spreads in S&P 500 options, one should also consider other factors and assessments including market microstructure dynamics and portfolio margin efficiencies when deciding on appropriate instruments to use for trade execution.

Another common lens for assessing liquidity is displayed book depth. Figures 1a and 1b show the depth of respective order books across ES options, SPX options as well as SPY options^[1] during the third quarter (lower market volatility) and second quarter (higher market volatility) of 2025, as well as during April 2025 (very high market volatility). Note that the vertical scale shows top level book depth (level 1) based on ES options contract equivalence, with the book depth of the other two products, SPX and SPY options, converted for comparison purpose.  

Note that ES options book depth is compared to those of SPX and SPY options during the U.S. trading hours. Since SPY options are not traded during non-U.S. hours, only book depths of ES and SPX options were shown.  

^{Source: CME Group, One Market Data}

^{Source: CME Group, One Market Data}

A couple of observations immediately present themselves. Displayed book depth of ES options are higher across virtually the entire strike range^[2] in each period. Depending on the moneyness, ES book depth was upward of 50% higher than the comparable SPX. As expected, displayed book depth was higher in less volatile markets. More on this later.  

As cautioned earlier in divining meaning from just one (set of) statistics – at times, the book depth during non-U.S. hours seemed to be at or better than that during U.S. trading hours. It is hard to fathom the market for U.S.-based instruments being more liquid during non-U.S. hours. Indeed, the higher non-U.S. hour book depth was coupled with generally wider bid-ask spread.  

As has been mentioned earlier, one cannot judge the liquidity in a market by just pointing to bid/ask spread or book depth. While book depth was proven above to be better for options on futures, one needs to go deeper when assessing which is the optimal product for a given client. Presenting more of these types of graphs would not advance the understanding of market liquidity by much. Instead, a short detour to a discussion of the market microstructure of the options market is in order.

There is no shortage of S&P 500 options, accessible to traders in many different contract structures. Indeed, there are daily expirations of both ES futures options and SPX cash index options, not to mention Micro E-mini S&P 500 futures options as well as SPY ETF options, among other ETF options tracking the S&P 500; additionally, S&P 500 options also trade over the counter (OTC).  

For each expiration, there are a very large number of strikes listed for trading. With strikes available 5 index points apart for the near-the-money strike range, as well as both put and call options being listed on each strike, it is not an exaggeration that there are thousands of ES options and as many SPX options being quoted at the same time. That means market makers in the options market are frequently initiating and updating resting bids and offers on thousands of highly correlated instruments. These all rely on CME Group ES index futures for price discovery – more on this later. For example, a 5-lot limit order quoted on 2,000 ES options instruments (across varying strikes and maturities) would mean 10,000 contracts on bid and offer in aggregate. This can indeed represent a very large risk exposure^[3].

To understand the scale of providing and updating liquidity across the options curve, consider a one-point increase in the index/Index futures. The 50-delta call and put will increase, or decrease, respectively, in value by 0.50 index points. Given the dense strike listing range and expirations in S&P 500 options, a significant move in the underlying index will necessitate a very large number of market maker quotes to be updated – i.e. if quotes were not updated in response as the index appreciates in values, calls would be undervalued and puts overvalued. The need to update option prices across the curve as a result of the tick-by-tick change of the index can be staggering and can be a governor on the amount of displayed risk any one market maker is willing to provide at a given point in time.  

Thus, if the market is showing any signs of a large move coming, an electronic foot race between the option market makers and other market participants could ensue, with the former trying to revise their quotes while price takers attempt to transact with any resting bids/offers before they can be revised.  

Thus, it is not hard to see the following:

• Given the sheer numbers of different options instruments, market makers will need to control this adverse selection risk by varying the width of their bid/offer spread in conjunction with the quantity on their bid/offer. For the same risk tolerance, a wider bid/ask spread can be associated with a larger quantity. A tighter bid/ask spread will have to be paired with smaller quantities to maintain the same risk exposure.  
• More importantly, it also means market makers need to maintain a wider bid/ask spread than the cost of hedging would require. The more volatile the market is, the wider the buffer needs to be. It would also mean that the total risk on a market maker’s resting orders would be reigned in by reducing the quantity on display as well if volatility were to pick up.

This latter point has a significant implication – if market makers are responding to a single quote request rather than leaving resting orders on thousands of correlated instruments, they have some capacity to tighten their bid/ask spread and bring it closer to the cost of hedging.

Secondly, with market makers managing their existing inventories of positions that are distinct but fast changing, they might respond to quote requests more aggressively on either the bid side or the offer side.  

As such, price improvements for the options market is very possible. It is often beneficial for market participants to “work” their order. Trades are often consummated inside the displayed bid/ask spread. Figure 2 shows a few examples of trades consummating within the prevailing displayed bid/ask spreads, taken from the CME Direct app available to market participants.

The ES market has long been regarded as the fastest indicator for the S&P 500, i.e., the point of price discovery:

• An E-mini S&P 500 futures (ES) contract is a single instrument encapsulating the index that is traded, and over the last couple of years, has traded up to 10x the volume of all S&P 500 ETFs combined as well as up to ~5x and ~1.5x the aggregate volume of the constituent stocks at their corresponding primary listing exchanges and the entire Reg NMS system, respectively. The ES futures price can be easily observed and updates in real time, almost instantaneously, with the transparency that all market data subscribers can see the same price and book dissemination. This is unlike a quantity that requires calculation based on the prices of all the constituent stocks from throughout the RegNMS system, and thus, necessarily lagging behind the true value.
• With the vast difference in trading activities, it is quite certain that ES futures price moves first and drives the rest of the S&P 500 related markets – ETFs, ES options, SPX options, SPY options, etc., with the ES futures serving as the default delta hedging vehicle. Indeed, SPX options market makers hedge with ES futures, with the combined ES futures and options and SPX options positions margined as a single portfolio through the CME-OCC cross margining arrangement.  
• With the ES futures and options residing at CME Group while SPX options use a different facility, it follows that the ES options would visibly respond to ES futures market changes first as market makers maintain co-located servers near the CME Group facility. Trading instructions take time even if just a split second to get to facilities remote from CME Group. The corresponding changes at SPX options will then ensue. Physics dictates the lead-lag relationship, not human intention.  

Another aspect of options trading that lends itself to market improvement is that a large proportion of trades are executed as part of spread or combination trades (known as strategies). Figure 3 shows the volume distribution of various popular options strategies spanning Q1-Q3 2025. Just under 50% of options volume was consumed as part of well-known strategies, e.g., puts and call vertical, butterflies, straddle/strangles, etc. Completely bespoke structures are also a very significant contribution to ES options volume on CME Globex.

On any given day, upwards of 10,000 or more spreads/combination requests are initiated by market participants via Globex. Further, over 500K ES options contracts per day (44% of total E-mini S&P 500 options market volume) traded daily via these strategies during 2025, known as user-defined spreads (UDS). Any new strategy request results in a new dedicated order book being created and a request for quote (RFQ) message being sent to market makers to populate the order book.  

Market makers’ bids/offers for strategies are often superior to those indicated from the outright order books. For example, rather than the difference of the bid of a call and the offer of the second call being the resultant price quoted in a vertical, the net bid/offer of the packaged strategy reflects that the net delta of the vertical is (much) lower than either leg in isolation. As such, the reduced risk, in addition to the indication of interest from a participant, would likely lead to market makers improving on the quotes implied from the outright books.

More importantly, the RFQ is broadcasted to all market participants connected to CME Globex and its ES options market. This transparent arrangement means that the interest in the strategies reaches a wider audience rather than merely being confined to a subset of participants who have access to a particular trading pit. Logic dictates that wider distribution results in better market quality. Further, it is entirely possible that another market participant might have the opposite interest and thus a mid-market trade ensues.

Block trades are permitted for ES options. Larger trades can be agreed to outside of the Globex central limit order book (CLOB) and reported to CME for clearing. It guarantees that the trade can execute in its entirety at one price. There is no “break-up risk,” unlike at other venues, where a certain proportion of a cross must be exposed to the pit and potentially shared between liquidity providers. Figure 4b shows the split of Globex vs. block trades during U.S. and non-U.S. trading hours.

Given the private and bilateral nature of block trade negotiation, it permits a workflow that can lead to further price improvement. Namely, the net premium of the block trade can depend on the executed price of the futures hedging trade.  

Consider a call vertical spread. It is, of course, possible to structure the trade with the ES futures delta hedge exchanged between the two counterparties to the trade. For example, a 200-lot 0.2 delta ES options trade can be executed with the 40-lot futures added as part of the trade, viz. buying the 200-lot call vertical spreads with 40 futures contracts, with the options net premium set based on the futures leg price. Removing the delta risk of the trade leads to a better price for the vertical spread.  

However, the client in the trade might only want the vertical spread and might not want to include the delta hedge in the trade, while the liquidity provider does want the delta to be hedged, in order to reduce the risk associated with the option strategy, thus enabling them to tighten the option price.  

In fact, liquidity providers are permitted to conduct delta neutralizing pre-hedge trades to achieve such an outcome – the liquidity provider fully hedges their delta exposure, while the price taker does not. This workflow provides the same risk reduction function and therefore price improvement on the options strategy, without the client having to unwind the unwanted delta hedging themselves^[4]. For very large block trades as well as during particularly volatile markets, this workflow may provide great benefit to both counterparties to a trade.  

Non-U.S. hour options trading volume in ES options is significant. Approximately 17% of E-mini S&P 500 options trades are consummated during non-U.S. hours, by far the highest volumes on any venue during this period. Information flow does not stop at the U.S. market close, nor does trading activities. Given the importance of the benchmark for the global market, participants enjoy the benefit of a transparent electronic market augmented by the flexibility of the block trade facility around the clock.

Users of ES futures and ES options on futures enjoy portfolio margining by default. All futures and options positions are evaluated for risk exposure as a portfolio when cleared at CME Clearing. Unless the market participant is permissioned by their clearing firm to participate in the CME-OCC cross-margining facility, SPX options are not afforded the benefit of the portfolio margin in conjunction with ES futures, whereas ES options do get this margin offset benefit automatically.  

CME Group allows for appropriate margin coverage while preserving efficient use of capital. The following analysis shows the benefits of such portfolio margining where the SPAN2 margin methodology assesses risk based on the net, worst-case loss of an entire portfolio, rather than on an individual leg basis.

The margin requirements produced by two portfolio margining systems are not necessarily universal. The margin requirements vary significantly depending on the specific positions, as well as the ability of the methodology to identify possible offsets. The following example provides some insight in how the CME Clearing’s SPAN2 margining operates vis-à-vis the OCC model.  

For this analysis, a portfolio of a long vertical call spread hedged with a short futures contract is used. As observed on a sample date during December 2025, the S&P 500 Index was trading at 6850, while the December E-Mini S&P 500 futures (ES) were quoted at a price of 6861, and the March ES futures were trading at a level of 6920. For analysis, we will review a call spread with strike prices 300 points apart; both the CME Group portfolio and the OCC portfolio will use equivalent strike levels for simplicity of comparison.

The CME Group portfolio consists of a bull call spread using the December EW options and hedges with a short futures position on the March 2026 ES contract. The CME Group portfolio details are as follows^[5]:

• Long 2 EWZ5 6700 calls (18 DTE)
• Short 2 EWZ5 7000 calls (18 DTE)
• Short 2 ESH6 ES futures (109 DTE)^[6]

For the OCC portfolio, a synthetic put-call combo is used instead:

• Long 1 SPXW 6700 call (18 DTE)
• Short 1 SPXW 7000 call (18 DTE)
• Short synthetic ATM future (109 DTE)
  • Short 1 SPXW 6850 call; Long 1 SPXW 6850 put

To compare the two portfolios, analysis was done to show differences in total initial margin, net option value (ANOV) and total risk requirement across the two portfolios. The below table highlights a significant difference in initial margins and cost savings between CME Group and OCC.  

CME Group provides superior capital efficiency when looking at option’s values with a net option credit of $20,175, compared to the $11,680 with the OCC. The net acts directly as collateral against total risk requirement, which reduces initial margin requirement for the total portfolio. In contrast, the OCC's requirement for a synthetic short futures contract (due to the lack of Equity Index futures) significantly inflates the initial cash outlay. Specifically, the short ATM 6850 call within the OCC synthetic position contributes to roughly $28,000 of the total $30,447 risk requirement. 

In short, The CME Group portfolio natively uses portfolio margining, allowing the ES futures contract and End-of-Month (EW) options to be offset. The net credit from the call spread acts directly to reduce the total initial margin and overall residual delta where the call spread’s delta of approximately 1 will partially offset the -2 delta of the short futures position, leaving us with a residual delta of -1 and therefore a reduced initial margin requirement.

For the OCC portfolio, the synthetic short futures contract creates a significant margin disadvantage due to the short call position therein. 

CME Group’s inherent portfolio level margining is beneficial to clients trading portfolios with offsetting positions. As a portfolio grows in its size and complexity, there is more potential for offsetting and margin efficiencies, and this should prove to be a beneficial methodology compared to alternative exchanges margining systems. Readers are encouraged to use CME Core, a tool provided by CME Clearing, to estimate an indicative margin for your portfolio and compare that to the requirement at the OCC for comparable portfolios.

Further, the portfolio margining extends beyond the S&P 500-related product set. Nasdaq-100 and Russell-2000 futures and options products are also margin offset-eligible, creating even more portfolio margin savings opportunity.

By no means is the preceding discussion meant for driving all readers to a definitive singular best set of products. Rather, market participants should evaluate the suitability of alternative product sets. However, E-mini product sets at CME Group should prove to be very competitive in terms of trading access and capital efficiency:

• Transparent, publicly accessible orderbooks for both options outright and spread instruments – no mystery, just price discovery; 
• Price improvement possibility versus displayed order book;
• Liquidity for E-mini options are available around the clock, with stronger activity in non-U.S. hours than alternative product sets;
• Availability of block trade facilities along with block market makers to accommodate specific needs;
• Efficient portfolio margining using CME Group’s SPAN2 margining system that encompasses total portfolio risk spanning futures and options on all available indices traded at CME Group.

For market participants with more diverse trading interest in terms of product families, the overall cost improvement tied to portfolio margin, as well as uniformity in trading access, should prove to be a superior solution. Indeed, the market has witnessed increased interest in Nasdaq-100 products this year and CME Group’s Nasdaq-100 futures and options have seen significant growth in 2025. Other trading venues seldom have the same breadth of products to support market participants’ trading.

^{[1] Note that SPY options are listed at multiple exchanges. With the cross-market order routing rules as well as payment for order flow arrangements, book depth is somewhat meaningless. Nevertheless, the SPY options book depth from NYSE Arca is added here for indicative purpose. 
[2] For each strike, the top of Book depth is measured for the “out-of-money” options. The scope of instruments measured spans 0-15 DTE options, from 98%-102% of ATM level during the observation period.    
[3] For order risk mitigation methodology available for market makers on CME Globex, please see CME Group Mass Quote Protections.
[4] For more information on pre-hedging of option block trades, please see Question 13 listed on the CME Group Market Regulation Advisory Notice (MRAN)
[5] To adjust for homogenized contract value factors, the CME Group positions have been scaled up by a factor of 2 as the ES contract represents $50 x S&P 500 Index, while SPX represents $100 x S&P 500 Index.
[6] DTE is known as Days Until Expiration indicating the number of days left in a contract’s life.}