Five Reasons to Trade Options on S&P 500 Futures

13 Apr 2016
By CME Group
Topics: Equity Index

1. The future market is where the volume, price discovery and technical levels in the S&P 500 occur.

Together the E-mini and Standard S&P 500 futures trade $200 billion notional per day – 60% more than trading in all 500 underlying constituents and ~9x the trading in S&P 500 ETFs.

S&P 500 futures trade 23 hours a day while the cash index is only calculated for 6.5 hours. S&P 500 futures trade more notional before the U.S. market opens than S&P 500 ETFs trade all day.

Technical levels are defined in the futures, not the underlying cash market. Trade options on the product that global investors are watching and using to manage their risk.

2. Physical delivery is more effective for many strategies.

The delta of options on futures remains constant through expiry. In-the-money options deliver into physical futures positions while out-of-the-money contracts expire “worthless.” In-the-money cash index options will never physically settle, forcing investors to replace the expiring delta with new index positions which creates slippage risk on the execution.

Futures options expire to a 30-sec VWAP of the underlying future – a “clean” price completely contained within the futures complex.¹

Weekly and End-of-Month options are exercised automatically providing greater certainty for investors by removing the risk of abandonment or contrarian exercise.

3. 29 percent market share cannot be ignored.

CME options on S&P 500 futures have a five-year compound annual growth rate of 28% and maintain over 29 percent market share versus CBOE cash options. In Q3 2016, E-mini S&P 500 options ADV was 560,433 contracts and S&P 500 options ADV was 45,536 contracts.

Densely-packed strikes and more than 100 annual expiries – with the recent listing of Wednesday Weekly Options – ensure all the granularity and coverage investors need to express the view they want. Each contract trades in a single order book with no multi-exchange fragmentation.

4. Futures portfolio margin is more capital efficient than securities margin.

Clients can achieve considerable margin savings by netting options on futures with offsetting futures hedges. Portfolio margining results in a single performance bond requirement and daily variation margin adjustment. Capital efficiencies are furthered by the physical settlement into the underlying future that requires substantially less margin/capital than trading the cash securities basket at expiration.

5. Thirty market makers support E-mini options 23 hours per day on CME Globex.

Clients can capitalize on actionable liquidity whenever news happens with over 52,000 contracts per day trading outside of US trading hours.

Trade options on the E-mini contract electronically around the clock or use the Standard options hybrid model of overnight electronic trading and open-outcry floor trading during U.S. market hours.

¹ The only exceptions are quarterly options, which expire jointly with the futures at the cash index SOQ.

Data through September 30, 2016.

About CME Group

As the world's leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. Comprised of four exchanges - CME, CBOT, NYMEX and COMEX - we offer the widest range of global benchmark products across all major asset classes, helping businesses everywhere mitigate the myriad of risks they face in today's uncertain global economy.

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CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.