About CME Eurodollar Options

Eurodollar futures prices are determined by the market's forecast of the 3-month London Interbank Offered Rate (LIBOR). The futures prices are derived by subtracting the implied interest rate from 100.00. That price reflects the market's expectation of where 3-month LIBOR deposit rates will be at some point in the future. For instance, an anticipated interest rate of 5.00 percent will translate to a futures price of 95.00 (100.00 − 5.00 = 95.00). Given this price construction, if interest rates rise, the price of the futures contract falls, and vice versa. Therefore, a trader who expected interest rates to decline would buy the futures contract (known as “going long”). If a trader believed rates would rise, he or she would sell the contract (known as “going short”). In either case, if the trader's market view turns out to be correct, the trader would be able to liquidate or offset the original position and realize a gain. If the market view is incorrect, however, the transaction could result in a loss.

Eurodollar futures trade in price increments of one-quarter and one-half one basis point, depending upon when the contract expires, and this is often referred to as the “tick” value. Gains or losses are calculated simply by determining the number of ticks moved, multiplied by the value of the tick. A full tick or basis point in Eurodollar futures, for example, is worth $25.00. The $25.00 basis point value is based on the $1,000,000 notional (underlying cash) value of this contract, as calculated below:

$1,000,000 notional value × .0001 basis point × 90/360 (three month) deposit period = $25.00

For the nearest expiring or “spot” month in Eurodollar futures and options (serial or quarterly), the minimum price fluctuation is 1/4 of a basis point or a “1/4 tick,” which is $6.25. For all other CME Eurodollar contracts, the minimum price fluctuation is 1/2 of one basis point, or a “1/2 tick,” which is $12.50.

Options on Eurodollar futures are also quoted in index points. Because the futures price, the options price and the strike price are quoted in the same terms, the price relationships are clearly observable.

Eurodollar options trade on the CME Globex platform virtually 24 hours a day, with customers around the world. Trading outside the United States is facilitated through telecommunication hubs in London, Amsterdam, Dublin, Gibraltar, Milan, Paris and Singapore.

The best way to access CME electronic options is through CME Globex Partners. Comprised of ISV and FCM front-end trading system providers, CME Globex Partners offer enhanced electronic access to the CME options markets. For more information, contact your FCM or ISV directly.

If your FCM or ISV does not currently support enhanced option functionality on CME Globex, you may want to consider CME EOS Trader™, a web-based front-end system with comprehensive electronic access to options trading for CME Interest Rate, Equity, FX, and Commodity products, as well as NYMEX Energy products.