S&P 500 Options on Futures: Options Block Enhancements

New option block rules on CME S&P 500 options on futures offers flexibility and an efficient alternative to OTC synthetic combos.

Did you know: you can block a delta-neutral S&P 500 options trade at CME Group?

  • You can block S&P 500 futures (Standard and E-mini) as part of a delta-neutral Standard S&P 500 options on futures trade.
  • 100% of the trade can be privately-negotiated and consummated, and subsequently reported to CME1.
  • Each S&P 500 option leg in a block trade is required to satisfy a minimum of 250 contracts; (and please note that the while the number of covering futures contracts can be below the option leg minimum of 250, the delta of the futures contracts must equal the net delta of the option legs).

Why does this matter?

  • Delta-Neutral Trades: Trading delta-neutral is the preferred convention for larger S&P 500 index options trades that require capital commitment. The covering futures block trade replaces the need to trade an OTC synthetic combo.
  • Risk Management: S&P 500 futures and options on futures are centrally cleared at CME Group, thus mitigating counterparty credit exposure and associated risks.
  • Capital Efficiency: A listed, delta-neutral covered futures and options block trade can be more capital efficient as the futures and options on futures could provide margin offsets and relief to charges commonly levied on OTC transactions (e.g. Basel, RWA, SLR)
  • Reduced paperwork: no ISDA or CSA documentation is required when trading a covered futures and options block trade at CME.

Additional Enhancements

CME Group has also introduced two additional rule changes aimed to assist market participants manage risk outside of U.S. trading hours2:

  1. Reduced minimum block trade requirement for S&P 500 options from 250 contracts to 100 contracts3;
  2. Extended block trade reporting time window from 5 to 15 minutes during non-US hours for all block-eligible equity index futures and options products4.

Example: Delta-Neutral Block Trade Ticket in CME Direct

  1. http://www.cmegroup.com/rulebook/files/cme-group-Rule-526.pdf
  2. Non-US trading hours are between 4pm-7am CT Monday-Friday on regular business days and at any time on the weekends.
  3. Please note there will be no changes to the minimum 250-lot block size for the S&P 500 options during Regular U.S. Trading Hours.
  4. Please note there will be no changes to 5-minute reporting window for block-eligible equity index futures or options products during Regular U.S. Trading Hour

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