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CME adds covered spread trading to Globex platform

10 July 2006  |  3761 views  |  0 Source: Chicago Mercantile Exchange

In response to continued growth in customer demand for electronic trading of CME Eurodollar options, CME, the world's largest and most diverse financial exchange, today announced that it has launched user-defined covered spreads or "Covereds" on CME Globex.

A covered trade, also known as a "delta-neutral" trade, is a spread trade that includes both options and futures where the relationship between the price fluctuation of the option and the futures positions offset one another. CME Globex allows customers to enter orders for covered option and futures trades in a single order, where the futures and options "legs," of the trade will be filled together.

Covereds are designed for traders who commonly use volatility strategies to trade CME Eurodollar futures and options. With the addition of covereds, CME will embark on the first phase of its User-Defined Spreads. The exchange plans to add more user-defined spread functionality for options in the first quarter of 2007. User-defined spreads are spreads composed of CME-defined contracts, created by traders during the trading session.

"Covereds represent a significant portion of our CME Eurodollar options volume, so providing this functionality on CME Globex is an important milestone in expanding electronic participation in our CME Eurodollar options market," said Robin Ross, Managing Director, CME Interest Rate Products. "The ability to package options trades with futures is an important part of meeting customer trading strategies based on their specific needs and volatility parameters, and will provide greater flexibility to manage risk for the global interest rate market."

In June, average daily volume of CME Eurodollar options traded electronically was a record 119,000 contracts, up 357 percent from June 2005 and representing over eight percent of total CME Eurodollar options volume, the highest monthly percentage to date. Since the 2004 launch of CME's Enhanced Options System, which has since been integrated onto CME Globex, over 15.5 million CME Eurodollar options have traded electronically.

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