As previously announced in Clearing Advisory 04-125 (July 14), beginning this Monday, July 26th, options on weather futures will trade on the CME trading floor rather than on GLOBEX.  Clearing product codes for these options will not change.

For each eligible series for each such option product, a limited range of strike prices will be listed, comprising only a subset of all strikes eligible to trade.  The range of eligible strikes is being widened, and the strike increment is being made smaller, so that more strikes will be eligible to trade than are actually listed. 

Rather, as trades occur in eligible but not-yet-listed strikes, the options will be created dynamically.  Although this process is similar to what happens when flex options trade for the first time, the weather options are standard strikes, identified by contract month rather than by a specific date of the month. 

You can think of this as “dynamic creation of standard option strikes.”  The trade price quotation published over the Quote Vendor Network is what alerts you in real time to the creation of the new strike.  Most such trade price quotations are likely to be block trades, but they also may occur as standard pit trades.

Suppose for example that such a strike trades for the first time at 2pm on Wednesday July 28th.  This strike would not have been in the “edit file” published at the end of the day on Tuesday July 27th, nor would it have been in the “complete” SPAN file published on that day.  Beginning on the 28th, this strike would be in both the edit file, the settlement price file, and the daily SPAN files.

For the complete text of Advisory 04-125, please click here.

For additional information, please contact the CME Clearing House at 312-207-2525.