CME Group Monthly Options Review July 2014

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The Monthly Options Review keeps you informed about CME Group’s options complex, with the latest news, developments and trends, across all asset classes, to help you take advantage of every opportunity our options marketplace provides.

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CME Group Monthly Options Review July 2014

  1. 1. How the world advances cmegroup.com/options July Options Review Volume up 18% led by Equity Index, Agriculture, and Interest Rates A growing number of investors are turning to options on futures to manage volatility and market uncertainty. Offering more flexibility (strike, duration, exercise style) and precision, options on futures allow market participants to better customize their risk management strategies to their specific needs. Plus, with nearly 50% of options now traded electronically, these products are more accessible than ever. JULY PRODUCT HIGHLIGHTS • 2,376,923 in daily options volume • Options accounted for 19.4% of total CME Group Volume, up from 18.6% in July 2013 • 49% of options traded electronically in July. • Interest Rate options: 1,311,760 contracts traded per day, +18% YoY • Equity Index options: 456,414 contracts traded per day, +48% YoY • Agricultural options: 242,417 contracts traded per day, +15% YoY • Weekly Options: 218,126 contracts traded per day across all asset classes 50,000 100,000 150,000 200,000 250,000 Jan-11M ar-11M ay-11 Jul-11Sep-11N ov-11Jan-12M ar-12M ay-12 Jul-12Sep-12N ov-12 Jan-13M ar-13M ay-13 Jul-13Sep-13N ov-13 Jan-14M ar-14M ay-14 Jul-14 ADV Equity Index Treasuries Agriculture FX Energy Metals Weekly Options Volume January 2011–July 2014
  2. 2. 2 | Options Monthly Review | July 2014 cmegroup.com/options INTEREST RATES OPTIONS Whether you trade on the floor or on the screen, CME Group Interest Rate options give you direct access to an array of products and an ever-expanding pool of liquidity — all in a streamlined and regulated marketplace. With the addition of Weekly Treasury options, the expansion of short dated Eurodollar Mid-Curve options and long-dated (Green) Eurodollar options, CME Group has significantly broadened the range of Interest Rate option opportunities. 527,869 762,303 603,508 649,405 543,750 453,054 710,049 467,421 691,129 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 May06 May13 May20 May28 Jun03 Jun10 Jun17 Jun24 Jul01 Jul08 Jul15 Jul22 Jul29 Aug05 Aug12 Aug19 Aug26 Sep03 Sep09 Sep16 Sep23 Sep30 Oct07 Oct14 Oct21 Oct28 Nov04 Nov11 Nov18 Nov25 Dec02 Dec09 Dec16 Dec27 Dec30 Jan06 Jan13 Jan21 Jan27 Feb03 Feb10 Feb18 Feb24 Mar03 Mar10 Mar17 Mar24 Mar31 Apr07 Apr14 Apr21 Apr28 May05 May12 May19 May27 Jun02 Jun09 Jun16 Jun23 Jun30 Jul7 Jul14 Jul21 Jul28 2013 2014 Volume (Week Total) Unemployment FOMC Meeting FOMC and Aug Unemployment July Volume Trends • Eurodollars: 811,889 ADV, +38% YoY – 15% of Eurodollar options traded electronically, up from 9% in July 2013 • Treasuries: 499,671 ADV, -5% YoY • 10-Year note options: 273,280 ADV, -6% YoY • 5-Year note options: 96,037 ADV, +5% YoY • Weekly Treasury options: 70,125 ADV, +5% YoY – Offer precision timing to target high impact economic events — 691,129 contracts traded during the last week of July around FOMC, GDP, and Unemployment Electronic Treasury Options Continue to Grow • 62% of Treasury options were electronically traded in July • 2-Year: 54% | Up from 16% in July 2013 • 5-Year: 50% | Up from 31% in July 2013 • 10-Year: 61% | Up from 58% in July 2013 • 30-Year: 76% | Up from 50% in July 2013 Eurodollar Open Interest • Eurodollar options open interest has increased significantly in the past 12 months, as Fed tapering is causing market participants to focus more attention on the short end of the rates curve. • Total Eurodollar open interest is over 26 million contracts — the highest level in the last five years and quickly approaching all-time highs • The Fed’s actions have caused a strong increase in Put activity. Puts now account for 66% of total Eurodollar options O/I. Eurodollar Market Trend Activity shifting to short-dated products and conditional curve trades • During 2013, much of the activity took place in the 2-year and 3-year mid-curve options, as rate hikes were expected to be several years out • During 2014, focus has shifted to the quarterly and 1-year mid-curve options • In July 2014, these products represented 56% of volume (versus just 36% in 2013) • This shows investors are reverting to the typical behavior before the financial crisis, when ED and 1-year mid-curve options typically represented 80-90% of volume Weekly Treasury Options Around Key Economic Events
  3. 3. 3 | Options Monthly Review | July 2014 cmegroup.com/options EQUITY INDEX OPTIONS With over 456,000 contracts traded daily in July, CME Group Equity Index options on futures provide you with flexible, liquid tools to manage global equity exposure and pursue opportunities represented by the world’s leading indexes, all from one marketplace. On the floor or on the screen, large-cap to small-cap, short-term weekly, end-of-month to quarterly expirations, our extensive selection of products provides the choices you need to execute a variety of trading strategies. July Volume Trends • E-mini SP 500: 400,406 ADV, +44% YoY • E-mini SP 500 End-of-Month options: 34,198 ADV, +90% YoY • SP 500 options: 35,450 ADV, +55% YoY • E-mini NASDAQ-100 options: 10,947 ADV, +461% YoY • SP 500 End-of-Month options: 2,438 ADV, +23% YoY Weekly Options Offer Flexibility, Opportunity, Precision • Weekly E-mini SP 500 options: 113,466 ADV, +80% vs. July 2013 – Weekly options represented 25% of the E-mini SP 500 options volume in July • Weekly SP 500 options: 6,621 ADV, +108% vs. July 2013 • Weekly E-mini NASDAQ-100 options: 1,909 ADV, +1230% vs. July 2013 Actionable Trade Information Weekly options Ahead of Unemployment Reports • 431,875 Weekly E-mini SP 500 options traded on Aug 1 around Unemployment report • The release of the monthly employment data often leads to volume surges in E-mini SP 500 Weekly options on the respective Friday, as indicated in the chart below. • Trading in the expiring weekly and the next weekly option often exceeds ADV by 200-300%, depending on the expiry. • On Employment report days, which generally coincide with W1 option expiration, the ADV of expiring Week 1 and Week 2 options explodes as traders – Hedge long-term positions – More precisely manage gamma and theta risk – Initiate new positions to anticipate movement of the underlying equity market for the next 1 to 7 days 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 Jan02 Jan08 Jan14 Jan21 Jan27 Jan31 Feb06 Feb12 Feb19 Feb25 Mar03 Mar07 Mar13 Mar19 Mar25 Mar31 Apr04 Apr10 Apr16 Apr23 Apr29 May05 May09 May15 May21 May28 Jun03 Jun09 Jun13 Jun19 Jun25 Jul01 Jul08 Jul14 Jul18 Jul24 Jul30 Unemployment Report Weekly E-mini SP 500 options Surge around Employment Data
  4. 4. 4 | Options Monthly Review | July 2014 cmegroup.com/options July Overview • Energy options traded 232,974 contracts per day, 38% of which were traded electronically on CME Globex. • Total open interest in Energy options was nearly 8.9 million at the end of July Crude Oil Options • Crude Oil options traded 136,519 contracts per day, with a record 70% of the LO contract traded electronically on CME Globex • Crude Oil options RFQ activity reached record levels in July with more than 600 sent per day and a 224% response rate • Multi-leg options trades in LO traded on CME Globex hit record volume of 20k/day, representing 26% of total electronic volume • WTI options: 126,524 ADV • Brent Crude Oil options: 6,665 ADV, +54% YoY • Brent American-style options (OS): 1,981 ADV, +374 YoY Weekly Energy Options Remain Strong • Over 60,000 contracts traded since launched on April 13. • Offer greater flexibility to manage volatility arising from storage data, weather anomalies, and other macroeconomic factors, with the added benefit of shorter expirations to implement strategies at a lower premium. • Available on CME ClearPort as of August 11 • Weekly Brent options coming August 18 Natural Gas Options • July ADV of 88,850, +30% YoY • YTD ADV of 112,649 contracts, +8% YoY • 9% of Natural Gas options were executed on CME Globex in July ENERGY OPTIONS CME Group offers around-the-clock access to the world’s benchmark options products among Crude Oil, Natural Gas, and Refined Products. Our diverse options product slate provides the liquidity and open interest that traders need, with the flexibility to buy and sell American-Style, European-Style, Average Price, Calendar Spread, Short-Term, and Futures Strip options on three trading venues. 0 500 1,000 1,500 2,000 2,500 0 200 400 600 800 1,000 1,200 1234567891011121314151617181920 OpenInterest AverageDailyVolume Trading Days Until Expiration ADV Average Open Interest Crude Oil Weekly Options - Average Daily Volume and Open Interest by Days to Expiration 0% 10% 20% 30% 40% 50% 60% 70% - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 ElectronicPercentage AverageDailyVolume Electronic ADV % Electronic NYMEX WTI Options (LO) Electronic Volume and Percentage Refined Product Options • Refined product options: 7,153 ADV, +63% YoY • ULSD American-style options (OH): 3,149 ADV, +115% YoY • RBOB Average Price options: 698 ADV, +389% YoY • More than one-third of RBOB American-style options were executed on CME Globex in July
  5. 5. 5 | Options Monthly Review | July 2014 cmegroup.com/options AGRICULTURE OPTIONS The diverse selection of CME Group Agricultural options offers the flexibility for effective risk management, as well as the ability to execute volatility strategies or event driven trades. The portfolio of Grain, Oilseed, Livestock and Dairy products provide an array of options, from outright and spread options (Calendar and Intercommodity Spread options) to short term alternatives (Weekly and Short-Dated New Crop options). July Volume Trends • Grains and Oilseeds – Corn Options: 106,495 ADV, +1% YoY – Soybean options: 78,750 ADV, +37% YoY – Chicago SRW Wheat: 22,799 ADV, +32% YoY – Soybean Meal options: 10,846 ADV, +14% YoY – Soybean Oil options: 7,405 ADV, +28% YoY – KC Hard Red Winter (HRW) Wheat: 1,829 ADV, +267% YoY • Livestock – Live Cattle options: 23,968 ADV, +158% YoY – Lean Hog options: 14,620 ADV, +129% YoY – Feeder Cattle options: 1,514 ADV, +74% YoY • 56% of agriculture options were executed electronically in July Options Spreads on CME Globex • Grain options traded over 2.9 M electronically in July, setting a CME Globex record. Spread trading accounted for over 1 M of the volume. • Livestock options traded over 700 K electronically in July, setting a CME Globex record. Spread trading accounted for over 200 K. Short-Dated New Crop Options Remain Strong Short-Dated New Crop options offer enhanced hedging flexibility and an array of trading opportunities for those seeking a cost- effective way to take a position in new crop futures contracts. • July ADV of 11,342, +1% YoY – SDNC Corn options: 4,535 ADV – SDNC Soybean options: 6,807 ADV – SDNC Soybean options traded a record 16,370 on July 15 • YTD ADV +12% YoY Record Livestock Options • Both live cattle options and feeder options set record high open interest on July 28: 382,819 for LC options and 51,107 for FC options. • Feeder Cattle had the longest rally in 37 years on supply woes. Why Options are Important in Current Ag Markets • Risk Management - OTM (Out of the money options) can define risk losses regardless of gap moves or limit days. • Margin Efficiency - Options, specifically option spreads can be less margin intense than futures during volatile times • Flexibility-“It is hard to catch a falling knife” – Options are multi-dimensional, offering numerous opportunities to express an opinion. With multiple strikes, maturities and products, market participants have a choice on what kind of exposure they would like to face and how to manage it. 0% 5% 10% 15% 20% 25% 30% 35% 40% 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 201309 201311 201401 201403 201405 201407 0% 5% 10% 15% 20% 25% 30% 35% 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 201309 201311 201401 201403 201405 201407 Grain Options % of CME Globex Trades that are Spreads Livestock Options % of CME Globex trades that are spreads
  6. 6. 6 | Options Monthly Review | July 2014 cmegroup.com/options FX OPTIONS Trade FX options in the world’s premier FX marketplace. CME Group’s flexible products on major and emerging-market currencies provide greater capital efficiency, security, and unparalleled opportunity for managing FX exposure. That includes 31 FX options based on 22 currencies, offering enhanced trading versatility and the security of one of the world’s largest central counterparty (CCP) clearinghouses to mitigate counterparty risk. July Volume Trends • FX options: 56,300 ADV, +3% MoM • 91% electronically traded • Second highest daily FX options volume (108,193 contracts) on July 30, driven by FOMC meeting • EUR/USD options: 21,585 ADV, -10% MoM • GBP/USD options: 12,440 ADV, +4% MoM • JPY/USD options: 10,909 ADV, +36% MoM • CAD/USD options: 5,566 ADV, +23% MoM • AUD/USD options: 4,916 ADV, +4% MoM Weekly FX Options Continue to Gain Momentum • Cost-effective tools for managing short-term currency event risk • Weekly FX options: 12,039 ADV, +83% YTD • G6 Weekly options accounted for 21% of total CME FX option ADV in July • Increase in FX Weekly Options ADV driven by Weekly JPY/USD (+98% MoM) and CAD/USD (+89% MoM) • GBP weekly: 4,034 ADV, +703% YTD • EUR weekly: 3,794 ADV, +38% YTD • CAD weekly: 1,760 ADV, +214% YTD • JPY weekly: 1,457 ADV, -23% YTD • AUD weekly: 888 ADV, +153% YTD • CHF weekly: 106 ADV, +18% YTD 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 2012 2013 2014 ADV ADV 3 per. Mov. Avg. (ADV) 91% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 10 20 30 40 50 60 70 80 90 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 2012 2013 2014 %TradedElectronically AverageDailyVolume Thousands FX ADV % Electronic CME FX Options ADV and % Electronic G6 American-Style FX Weekly Options with 3-month moving average
  7. 7. 7 | Options Monthly Review | July 2014 cmegroup.com/options METALS OPTIONS The CME Group COMEX and NYMEX metals options suite gives market participant’s access to Short-Term Gold Options as well monthly Gold, Silver, Platinum, Palladium, Iron Ore, and Copper Options. All of our products are traded on three venues — CME Globex, CME ClearPort, and the New York trading floor, allowing for maximum access to liquidity for investors whenever they need it. July Volume Trends • Metals options: 35,106 ADV in July • 54% of Metals options traded electronically on CME Globex • Total open interest in Metal options was nearly 1.9 million at the end of July • Gold options: 28,317 ADV, -29% YoY • Silver options: 5,314 ADV, -24% YoY • Palladium options: 580 ADV, +5% YoY • Platinum options: 519, -46% YoY • Copper options: 147 ADV, +38% YoY Weekly Metals Options • Over 10,000 traded since launched on April 13, with July ADV of 142. • Offer greater flexibility to manage the risk associated with government economic data, world events and other market- moving factors, with the added benefit of shorter expirations to gain market exposure at a lower premium. • Available for Gold, Silver, and Copper options • Available via CME ClearPort as of August 11 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Jan-2006 Jul-2006 Jan-2007 Jul-2007Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Contracts Platinum Options Palladium Options Copper Options Silver Options Gold Options 0% 10% 20% 30% 40% 50% 60% 70% 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Contracts Total ADV Electronic ADV % Electronic ADV 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 Jan-2006 Jul-2006 Jan-2007 Jul-2007Jan-2008 Jul-2008Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Contracts Platinum Options Palladium Options Copper Options Silver Options Gold Options 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Jul-2007Jan-2008 Jul-2008Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Contracts Total ADV Electronic ADV % Electronic ADV Options – Average Daily Volume Gold Options – Electronic Average Daily Volume Options Open Interest – Month-End Silver Options – Electronic Average Daily Volume
  8. 8. THREE WAYS TO ACCESS On CME Globex The recent growth of electronic options markets has led to deeper, more diverse markets with easier entry and exit points, and more streamlined access for execution and clearing. • 1,167,070 in daily liquidity • Speed, transparency, access and liquidity of electronically traded markets • Two-sided markets supported by dedicated market makers • Request for Quote (RFQ) – Allows participants to get competitive quotes, even during times of low market activity. On the Floor • 1,000,000 in daily liquidity • Quick setup and nearly instant access to liquidity • Voice brokers and floor traders facilitate price discovery and efficient execution on your behalf Bilaterally • 228,198 in daily liquidity • Control and convenience of privately negotiated trades • Security and counterparty credit risk mitigation of CME Clearing PM999/00/0814 How the world advances Copyright 2014 CME Group All Rights Reserved. CME Group is a trademark of CME Group Inc. The Globe logo, CME, E-mini and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT is a trademark of the Board of Trade of the City of Chicago, Inc. NYMEX and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. SP® 500 and SP MidCap 400™ are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Chicago Mercantile Exchange Inc. NASDAQ-100 is a trademark of The Nasdaq Stock Market, used under license. Dow Jones is a trademark of Dow Jones Company, Inc. and used here under license. All other trademarks are the property of their respective owners. The information within this document has been compiled by CME Group for general purposes only and has not taken into account the specific situations of any recipients of the information. CME Group assumes no responsibility for any errors or omissions. The information in this brochure should not be considered investment advice. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, NYMEX and CBOT rules. Current CME/CBOT/NYMEX rules should be consulted in all cases before taking any action. Futures and options trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. Asset Managers assetmanagers@cmegroup.com Banks banks@cmegroup.com Commercials commercials@cmegroup.com Hedge Funds hedgefunds@cmegroup.com Proprietary Trading Firms proprietarytrading@cmegroup.com FCMs/IBs intermediaries@cmegroup.com Contact your dedicated support team today. OPTIONS TOOLS AND RESOURCES Options Product Page Options news, product information, education, featured reports, tools and resources cmegroup.com/options QuikStrike Option Pricing Analysis Access current and historical volatility (by strike), concise volume and open interest information, delta sheets, options pricing analysis, spread analysis risk graphs. cmegroup.com/quikstrike Equity Index Volatility Surface Reports View the volatility surface of all E-mini SP 500 options and all E-mini NASDAQ-100 options currently listed for trading. cmegroup.com/volsurface Electronic Options Spotlight A quarterly snapshot of electronic trends and opportunities cmegroup.com/electronicoptions Options on Futures Guide Introductory guide to options and listing of most actively traded options contracts cmegroup.com/optionsguide Tabb Group Report Options on Futures Primed for Expansion cmegroup.com/optionsreport CME CORE Calculate your initial margin requirements for options. cmegroup.com/core

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