1

CME lists vol quoted USD-EUR options. I can tell they are incredibly illiquid (there are no quotes listed) but how would these settle? If I bought on a 7 vol how would I know if I made money?

Here is the contract spec

2

CME's volatility-quoted options are essentially a way for you to create a delta-neutral position by buying and selling an option and a future at the same time, so your primary immediate exposure is to the volatility component of the option. If you think the volatility of the UDS/EUR market is undervalued, then you might use these quotes to be long volatility but not have any exposure to the actual exchange rate.

So it's not really a different "product", but just a way to package a future and an option that will settle just like any other exchange-traded future and option would.

  • So I know that it is an option that is supposed to be delta neutral but that doesn't really say how it's decided who gets money at expiration? Is it based on realized volatility? Is it compared to the IV of the last print of premium quoted options? – ford prefect May 23 '18 at 16:14

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