From the August 01, 2012 issue of Futures Magazine • Subscribe!

Crossing boundaries with E-mini index options

Based on the same underlying indexes as larger contracts, mini equity index futures have the same advantages that come from trading large portfolios of equities with a single futures or options contract. The mini contracts carry lower margin requirements and, at the same time, provide significant leverage in being able to exploit market price changes at a moderate cost.

Trading risk in mini options is reduced because of the smaller price change per option point — $50 for the S&P 500 E-mini (vs. $250 per point for the full-size futures contract), $5 for the E-mini Dow options, $20 for the E-mini Nasdaq 100 and $100 for the Russell 2000 mini.

One factor that is critical whenever you trade equity options is volatility. Although each stock index includes a broad range of equities, there are differences in volatilities perceived by the options market, as shown on “Stock index minis” (below). The Russell 2000 mini index achieves the highest call option valuation for September 2012 futures on May 31, 2012. As shown on the chart, the Russell 2000 call premium is approximately 6% of the strike price at the point at which the futures price equals the strike price. The second most valuable because of volatility is the E-mini Nasdaq 100 with a price curve height of 5%. These options are followed by the E-mini S&P and E-mini Dow, with the lowest price curve at 4% of the strike price.

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