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.

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Derived option block functionality provides 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 are available on select Equity Index options complexes to bridge execution seamlessly with their underlying futures benchmarks.

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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.

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For Equity Index options, permitted hedging vehicles may include but are not limited to the underlying 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.

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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 (MPI) 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. For S&P 500 Month-End,  derived option blocks will have a minimum block quantity (MBQ) of 125 contracts per leg.

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Predefined 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 and specify in the free text field.

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Select derived block trade type on the deal entry screen. A list of derived block eligible only products will be available.

Once selected and an option product is added, 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.

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Yes, if you are a ClearPort or CME Direct user you will have the required access and entitlement for CME Platform to submit derived option blocks.

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