Options on 3-Month SOFR Futures Frequently Asked Questions

All SOFR options will trade in open outcry, CME Globex and on CME ClearPort.  SOFR options in open outcry will trade in the Eurodollar options pit.

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On January 6, 2020 we are launching options on the 3-Month SOFR futures (SR3). This will include standard options and Mid-Curves.

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We will list serial, quarterly, and select weekly options.  There will be a January option listed on day-one that expires January 10, 2020.

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SOFR options were designed to closely mimic Eurodollar options in terms of listings, strike increments, and the ability to create spreads between the different products (SOFR with SOFR and SOFR with Eurodollars)

There are two significant differences:

1. The expiration date of the Quarterly SOFR option (SR3) is different than the Quarterly ED option, and;
2. The expiring quarterly option will result in a futures position that doesn’t expire at the same time as the option

To elaborate:

When do the options expire?

All SOFR options, including the quarterly option will expire on the Friday before the 3^rd Wednesday of the named contract month.  The 2:00 pm CST futures settle will determine if an option is in or out of the money.  You may trade the options on Globex until 4:00 pm CST.

The quarterly expiration is one fundamental difference between SR3 and ED options

• The quarterly SR3 options will expire on the Friday before the third Wednesday.  The 2 p.m. CST. futures settle will determine if the option is in or out of the money. You may trade the option on Globex until 4 pm CST
• The quarterly ED option expires at 11:00 a.m. London time on the second London bank business day immediately preceding the third Wednesday of the contract’s named month of delivery (typically, the Monday before the third Wednesday).

What are the underlying futures of the quarterly SOFR options (SR3)?

SR3 quarterly options will exercise into their named SR3 futures contract, for example the March 2020 option will expire on Friday, March 13, 2020. Exercised and assigned options will result in a March 2020 futures position.  The March 20 future doesn’t expire until June 16, 2020

This is the second fundamental difference between SR3 and ED options

• The quarterly SR3 options will result in a futures position that still has 3 months until expirations
• The quarterly ED options results in a futures position that expires at the same time as the ED options

What are the underlying futures of the quarterly serial SOFR options (SR3) and Mid-Curves?

Just like the Eurodollars, SR3 serial options will result in a futures position in the next quarterly SR3 future. For example, the April 2020 SR3 option (SR3J0) will result in a June SR3 future (SR3H0).

Just like the Eurodollars, the Mid-Curve options will result in a deferred futures position that expires from 1 to 5 years after the options expires.

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Just like ED options, strikes will be listed in .25 underlying instrument price points from 5.50 above to 5.50 below at-the-money. Additionally, strikes will be listed in .125 underlying instrument price points from 1.50 points above to 1.50 points below at-the-money.

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Standard SR3 options:

Nearest quarterly month:
If nearest quarterly option is nearest to expiry:  1/4 of 0.01 IMM index points (0.0025 = $6.25)
If nearest quarterly option is not nearest to expiry:  1/4 of 0.01 IMM index points (0.0025 = $6.25)
for option premium ≤ 0.05 IMM index points,  1/2 of 0.01 IMM index points (0.005 = $12.50)
for option premium > 0.05 IMM index points
Second-nearest quarterly month:
1/4 of 0.01 IMM index points (0.0025 = $6.25) for option premium ≤ 0.05 IMM index points
1/2 of 0.01 IMM index points (0.005 = $12.50) for option premium > 0.05 IMM index points
All other quarterly months:
1/2 of 0.01 IMM index points (0.005 = $12.50)
CAB: 1/4 of 0.01 IMM index points (0.0025 = $6.25)
Serial months:
1/4 of 0.01 IMM index points (0.0025 = $6.25) for option premium ≤ 0.05 IMM index points
1/2 of 0.01 IMM index points (0.005 = $12.50)
for option premium > 0.05 IMM index points

All Mid-Curves:
1/2 of 0.01 IMM index points (0.005 = $12.50)
CAB: 1/4 of 0.01 IMM index points (0.0025 = $6.25)

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Yes, we will support all spreads between SOFR options, SOFR Mid-Curve options, Eurodollar and Eurodollar Mid-Curve options in all three venues (Open Outcry, Globex and Block)

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RTH – 2500
ETH – 1250
ATH – 625

For Spreads each leg of the spread must meet the minimum block threshold

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Yes, CME will offer risk appropriate margin efficiencies with other CME listed products and we plan to offer those efficiencies at launch. Margin efficiencies are dynamic and based on market activity, exact levels will be available here. 

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Further information, including historical data and rate setting methodology, are available at the links below from the Federal Reserve Bank of New York (FRBNY), the administrator of the SOFR benchmark.

• SOFR Rate Setting Methodology
• SOFR Historical Settlings since inception (04/02/2018)
• Daily Historical Indicative SOFR and accompanying volumes from Aug2014 to Mar2018
• FRBNY time series of the volume-weighted mean rate of the primary dealers’ overnight Treasury general collateral repo borrowing activity collected through this survey (the survey rate) dating to Feb1998

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