Introduction to Eurodollar Futures and Options

A benchmark for investors globally, Eurodollar futures provide a valuable, cost-effective tool for hedging fluctuations in short-term U.S. dollar interest rates. Eurodollars are U.S. dollars deposited in commercial banks outside the United States.

Eurodollar futures prices reflect market expectations for interest rates on three-month Eurodollar deposits for specific dates in the future. The final settlement price of Eurodollar futures is determined by the three-month London Interbank Offered Rate (LIBOR) on the last trading day.

Eurodollar futures were the first futures contract to be settled in cash, rather than physically-delivered. A total of 40 quarterly futures contracts, spanning ten years, plus the four nearest serial (non-quarterly) months are listed at all times. Serial Eurodollar futures are identical to the quarterly contracts except they expire in months other than those in the March, June, September and December quarterly cycle. Today approximately 98% of Eurodollar futures trade electronically on CME Globex electronic trading platform. 

Benefits of Eurodollars

  • Unsurpassed liquidity - consistently tight bid/offer spreads
  • Lower transaction costs
  • Diverse trading opportunities
  • Price transparency
  • Mid-curve options offer a low premium, high time decay

Packs and Bundles

Packs and Bundles provide convenient alternatives for executing strips of Eurodollar futures.

Eurodollar Packs are the simultaneous purchase or sale of an equally weighted, consecutive series of four Eurodollar futures contracts, quoted on an average net change basis from the previous day’s close. Packs, like Eurodollar futures, are designated by a color code that corresponds to their position on the yield curve. There are always 37 Packs listed for trading at a given time. The most common are: Red, Green, Blue, Gold, Purple, Orange, Pink, Silver and Copper, corresponding to Eurodollar futures years 2-10, respectively.

Eurodollar Bundles allow you to simultaneously buy or sell consecutive series of Eurodollar futures in equal proportions, typically beginning with the front quarterly contract. This means that a 5-year “strip” comprised of 20 individual contracts can be executed with just one transaction.

The price of a Eurodollar Pack or Bundle is quoted in terms of the average net change from the previous day’s settlement prices for the entire group of contracts in the pack or bundle. Bundles and Packs are quoted in minimum .25 tick increments.

Eurodollar Options

Options on Eurodollar futures are among the most actively traded exchange-listed interest rate options contracts in the world, trading over 1.4 million contracts per day in 2018. The liquidity of Eurodollar options offers traders and hedgers an opportunity to take advantage of their views on the direction of U.S. interest rates. Opportunities range from high gamma one-week options, to high vega options expiring up to four years in the future.

Eurodollar options provide the ability to limit losses while maintaining the possibility of profiting from favorable changes in the futures prices. All Eurodollar options are American-style, meaning that the options may be exercised on or before expiration.

Mid-Curve Options

In addition to 16 quarterly and four serial options, Eurodollars also offer Mid-Curve options. Mid-Curve options are short-dated American-style options on deferred Eurodollar futures contracts, one, two, three, four and five years from the options expiration date. These options give the ability to trade options expiring at the same time on different parts of the curve. Because they are short-dated, Mid-Curve options offer a low premium, high time decay alternative in this segment of the yield curve.

Weekly expirations on the 1-year, 2-year and 3-year Mid-Curve options are also listed, which allow you to take a view on upcoming economic releases and the effects upon U.S. interest rate markets.

Contract Details