As with a covered option, volatility-quoted options allow CME Globex clients to trade an option volatility with an 'auto-hedge' into the corresponding quarterly month of the underlying futures contract. In addition, volatility-quoted options eliminate the volatility-to-premium conversion and ongoing price modifications previously required to trade options volatility in premium markets. Clients can choose to participate in the volatility-quoted options and/or the premium-quoted options. It is important to note that the option instrument - whether traded in volatility or in premium forms - is one and the same contract allowing for optimal margin efficiency. A contract traded in volatility can subsequently be traded in premium and vice versa.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
