1. What is a derived options block?

A derived options block trade is a privately negotiated block trade where the price and quantity of the executed option depend on one (or a series) of hedging transactions executed in an eligible related market, such as the underlying futures contract.

The methodology for executing the hedging transaction, along with the precise calculation for deriving the price and delta-proportioned volume of the underlying trade, must be fully determined and mutually agreed upon by the two counterparties prior to the execution of the hedging transaction.

Rules pertaining to all block trade variants are governed strictly under Rule 526 of CME Group designated contract markets (the Exchange or CME Group Exchanges). For official regulatory guidance on Exchange Rule 526 regarding block trades, reference the applicable Market Regulation Advisory Notice.

Derived options block will be available starting June 29, pending regulatory review.

2. Why are derived option blocks being introduced?

Derived option block functionality will provide greater liquidity and execution flexibility for eligible listed options contracts by allowing liquidity to be sourced directly from related markets. Given the success of derived futures blocks on eligible contracts, derived option blocks will be available on select Equity Index options complexes to bridge execution seamlessly with their underlying futures benchmarks.

3. Which products will be eligible?

Derived option block trades will be available solely for E-mini S&P 500 options and S&P 500 Month-End options (see Rule 526 Market Regulation Advisory Notice).

View the block trade cheat sheet to see all products eligible for derived blocks.

4. What underlying instruments can be used as part of the hedge?

For Equity Index options, permitted hedging vehicles may include but are not limited to the underlying CME Group futures contracts, stock baskets or other cash market instruments (ETFs and ETNs) that can be construed as bona fide hedging instruments for the Equity Index options in the derived option block trade.

5. How derived option blocks differ from standard option blocks?

For S&P 500 options, derived option blocks are eligible to be submitted at a smaller tick size and larger minimum quantity threshold when compared to standard option block trades. While regular block trade and EFRP minimum ticks for these options will remain at 0.05, the minimum tick for derived options blocks will be 0.01 for both outrights and spreads. Additionally, for the E-mini S&P 500 options, derived option blocks will have a Minimum Block Quantity (MBQ) of 250 contracts per leg, whereas regular block submission MBQ will remain at 100 contracts per leg.

6. How can the related market hedge be executed?

Pre-defined hedging types are:

  • Volume weighted average price (VWAP)
  • Time weighted average price (TWAP)
  • Percentage of volume (POV)
  • Limit price

For other hedging methodologies, select “Other” under the hedge description in CME Direct and specify in the free text field.

7. What does the order entry screen look like?

A derived options block tick box is available on the CME Direct block entry screen.

Once ticked, you will be required to enter the following details:  

  • Block hedge type 
  • Hedge description 
  • Reference hedge product 
  • Initial quoted option price 
  • Initial quoted reference level 
  • Start time and end time

An example trade submission is shown below:

Derived block trades

Privately negotiated derived blocks provide access to Equity Index futures liquidity to execute large trades with a built-in delta hedge.

Find out more