Eurodollar Futures Options Trading

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Eurodollar Futures

The Eurodollar futures contract is the most widely traded and versatile interest rate futures product in the world. It provides a valuable, cost-effective tool for hedging interest rate fluctuations on Eurodollars – U.S. dollars deposited in commercial banks outside the United States. Eurodollar deposits play a major role in the international capital market, and have long served as a benchmark interest rate for corporate funding.

Eurodollars are time deposits denominated in U.S. dollars that are deposited in commercial banks outside the U.S., and they have long served as a benchmark interest rate for corporate funding.

The Eurodollar futures contract, developed and introduced by CME in 1981, represents an interest rate on a three-month deposit of $1 million. The Eurodollar futures contract is now the most actively traded futures contract in the world. Open interest in the contract recently surpassed four million.

Introduction to Eurodollars

Course Overview

Eurodollars play an important role in the global economy. Often confused with the EUR/USD currency pairing, Eurodollars represent U.S. dollars held at foreign banks. Euordollars represent one of the world’s largest interest rate markets. Take this course to get a better understanding of how the Eurodollar market works, including how market participants worldwide manage risk and express views on this market by trading liquid Eurodollar futures and options. We’ll cover how the contracts are built and the important concepts you need to know, like what basis point values (BPV), convexity bias and implied forward rates mean. Explore the different ways to trade these contracts, from outrights to spreads to strips, and the benefits of trading futures as part of your portfolio.

What is LIBOR/What is Eurodollar

CME Eurodollar Contract Specifications

Eurodollar Futures

Contract Size - $1,000,000

Quotations - Index points

Minimum Price Fluctuation (Tick) - .0025 = $6.25/contract for spot-month contract; .005 = $12.50/contract for all other contracts

Contract Months - Mar, Jun, Sep, Dec and 4 serial months

Regular Trading Hours (Central Time) - 7:20 a.m. - 2:00 p.m.

GLOBEX Trading Hours (Central Time) - 4:30 p.m. - 4:00 p.m. the following day; on Sunday, trading begins at 5:30 p.m.

Last Trading Day - 11:00 a.m. London time on the second London bank business day immediately preceding the third Wednesday of the contract month

Final Settlement - Based on the British Bankers' Association Interest Settlement Rate

Eurodollar Options

Underlying Contract - One Eurodollar futures contract

Strike Prices - 25-basis-point intervals (i.e., 93.00, 93.25, 93.50, etc.) 12.5-tick strike prices are listed on the 2 serial months and next quarterly expiration month on the day following the expiration day of options in the March quarterly cycle. 12.5-tick strikes are listed in one-year Mid-Curve options on the 2 serial and first quarterly expiration's, and in the 2-year Mid-Curve option in the first quarterly expiration. Under certain circumstances, CME interest rate option combinations may trade at one-half tick increments (.005 = $12.50). Contact your broker or CME.

Premium Quotations - Total IMM Index points (i.e., 0.34 quoted as "34 Index points" or "34 basis points")

Minimum Price - .0025 = $6.25/contract for the nearest expiring quarterly options contract; .005 = $12.50/contract or the serials and first four quarterly options and the first two quarterly expiration's and serials in the 1-Year Mid-Curves and both quarterly expiration's of the 2-Year Mid-Curves; .01 = $25.00/contract for the last two quarterly options and the last two quarterly expiration's of the 1-Year Mid-Curves. For trades in the fifth and sixth quarterly options (the "Reds") half-tick trading is only allowed for options trading at a price of 5 ticks or less.

Contract Months - Quarterly options: the nearest 6 March quarterly expiration months and 2 serial months; One-year Mid-Curves: the nearest 4 quarterly expiration's and 2 serial months; Two-year Mid-Curves: 2 March quarterly expiration's

Regular Trading Hours (Central Time) - 7:20 a.m. - 2:00 p.m.

GLOBEX Trading Hours (Central Time) - 2:13 p.m. - 7:05 a.m.; on Sunday, trading begins at 5:30 p.m.

Last Trading Day - Quarterly options: second London bank business day immediately preceding the third Wednesday of the contract month; Serial and Mid-Curve options: Friday immediately preceding the third Wednesday of the contract month.

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