Eurodollar Term Mid-Curves, the newest addition to options on Eurodollar futures, offer short-dated options on the deferred white quarterly contracts. Eurodollar, Mid-Curve and Term Mid-Curve are options on Eurodollar futures.

Their names reflect the option expiration relative to the underlying Eurodollar futures contract. To better understand Term Mid-Curve options, we will review some basics.

Understanding Eurodollars

Eurodollar futures and options are sometimes referred to by a color, based on their expiration.

An option with an underlying futures contract expiring in the first year of quarterlies is sometimes referred to as a white. For instance, a December 2018 option with a December 2018 underlying futures contract would be called a white, or front, December.

Whereas a December 2019 option with a December 2019 underlying futures contract would be called a red December.

These Eurodollar options expire at or near the same time as their underlying futures contract.

The expiration of a Eurodollar option ranges from one month to almost four years. There are 16 quarterly Eurodollar options along with non-quarterly, or serial options, which reference the same underlying as their nearest subsequent quarterly option.

For example, a November 2018 option would reference a December 2018 Eurodollar futures contract.

Mid-Curve Eurodollar Options

Often market participants want to trade an option on an underlying futures contract that is over a year away, such as June 2019, however, they are looking to trade a shorter-dated option. That is where Mid-Curve options come in.

Mid-Curves are options on Eurodollar futures. However, their underlying futures contract expires later than the option does. This provides the ability to trade an option that expires in the short term but reference a futures contract that does not expire for up to a year or more.

Trading Mid-Curve Eurodollar Options

CME Group lists Mid-Curve Eurodollar options from one to five years in the future. These options expire in June 2018. However, their underlying futures contract is one to five years out.

Thus, allowing the ability to trade a short-dated option on a far-out Eurodollar futures contract. For example, a market participant wants to trade a June option on a June 2019 Eurodollar futures contract – but does not want an option with over 400 days to expiration.

Using a mid-curve option, they can trade a June One-year mid curve which expires in June 2018, but has an underlying futures contract of June 2019.

Mid-Curves are not limited to the first quarterly. There are five quarterlies and four serial options listed, covering multiple years of Eurodollar futures across the curve.

Market participants often package Eurodollar and Mid-Curve options, allowing for trading strategies utilizing multiple expirations with many different underlying futures.

Term Mid-Curve Eurodollar Options

In the past, there was no way to trade shorter-dated options on the second, third and fourth white Eurodollar futures quarterly contracts. Term Mid-Curves fill this gap with short-dated options on the second white quarterly, third white quarterly and fourth white quarterly. These could be thought of as a three-month mid-curve, six-month mid-curve and  nine-month mid-curve.

Term Mid-Curves will provide the ability to trade options on later-dated, white, quarterly futures. Listings will include two serial and one quarterly option.

For example, a market participant who wants to trade an option on December 2018 futures contract, can now trade a July 2018 option on that futures contract.

Term Mid-Curves will offer this flexibility while sharing similar characteristics as existing options on Eurodollar futures, including tick and strike increments.

They will be available to trade via open outcry or on CME Globex. Additionally, they are Block and Cross eligible. Get more information in the contract specifications.

Term Mid-Curves, the newest offering in the Eurodollar options complex, will provide the ability to trade short-dated options across more of the Eurodollar curve. To learn more, visit cmegroup.com/term