Clearing House Advisory Notices
To | Clearing Member Firms
From | CME Clearing
Subject | REVISED: Volatility-Quoted Foreign Currency Options-Coming in Q1 2008
Notice Date | 2007-11-09
Notice Number | 07-271
Effective Date | 1969-12-31
Note: The value of 'Execlnst' that indicates a volatility-quoted trade, is "r", not "I" as previously indicated. CME Group plans to offer volatility-quoted foreign currency options for trading on the CME Globex® electronic trading platform, beginning in the first quarter of 2008. Volatility–based quoting facilitates “delta-neutral” trading, reducing the execution risk that is inherent to trading in premium-quoted options. Volatility-quoted options trading will work as follows: • You submit your order to CME Globex, specifying the volatility-quoted option (as opposed to the normal premium-quoted option). • You specify the price in volatility terms -- ie, as the volatility of the option instead of its premium. (We call this the "volatility price", or simply the "vol price".) • The order matches on the volatility price. • You now receive two iLink fill messages: (a) one for the option itself, and (b) a second one for an opposite-side-of-the-market futures trade. Together, the option and the future comprise a delta-neutral option-future spread. For the full text of this advisory . . .