CME To Launch Options On E-Micro Futures This Fall | ETF Trends

Roughly a year after the successful launch of the E-Micro Index Futures by the CME last May, now the group is looking to bring another level of diversification to traders this Fall, options on E-Micro futures.

Closely tied to their older brothers, the E-mini Index Futures, the Micro E-mini Futures or E-Micro Futures, are based on the same underlying basket of stocks: the S&P 500, but have just 1/10 of the notional value of the larger contract, already a baby brother to the full-size SP Pit futures, the original contract.

With volatility having increased and the feasibility of trading a contract with a larger notional value such as the E-mini Index Futures now increasingly difficult for smaller traders, the CME attracted traders using the E-Micro Index futures, who were until now struggling to participate in the index futures markets due to limited capitalization.

Now the company takes that accessibility a step further by offering options on E-Micro Futures, allowing investors to potentially hedge positions, trade spreads, and generate a variety of strategies for trading that exceed simply buying or selling futures at the micro-level.

According to the CME, “With a lower premium related to the contract size, these options settle into liquid Micro E-mini futures, which traded more than 87 million contracts in 2019.”

While the E-Micro Futures are currently available for most of the benchmark indexes, the new E-Micro options will at first be available for only the S&P 500 and Nasdaq-100 futures markets.

To offer some idea of the difference between contract sizes, one contract of the SP Pit traded futures, with a notional value of approximately $700,00, is roughly 5 times the size of the E-mini Index futures, with a notional value of about $140,000, putting both of the contracts out of the range of many smaller investors. In comparison, the new E-mini Micro futures will have a notional value of $14,000, making it much more accessible to smaller investors.

While this is exciting news for many investors, for those who are wary of futures trading in general, ETFs such as iShares Core S&P 500 ETF (IVV)Vanguard S&P 500 ETF (VOO)SPDR S&P 500 ETF Trust (SPY)Schwab U.S. Large Cap ETF (SCHX), and iShares S&P 500 Growth ETF (IVW) continue to offer ETF investors the opportunity to invest in the broader market, with typically less risk, although different tax consequences.

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