Calculating Premium, Breakeven, and Risk for Eurodollar Futures Puts

Summary

The document raises practical questions about valuing a put option on a Eurodollar futures contract. It considers how a futures price move affects the option’s payoff, how to calculate breakeven from strike and premium, and how the option’s quoted minimum price increment translates into a cash amount for one contract. It also asks whether the buyer’s premium represents maximum risk and whether the option is marked to market like the underlying future.

The post provides a worked hypothetical using a stated strike, premium, futures price, tick size, and tick value, but it does not include an answer or verify the arithmetic and contract conventions. It is therefore a useful checklist of issues to resolve when interpreting futures option quotes, rather than a complete explanation of settlement, daily margining, or P&L. Readers would need contract-specific rules to confirm the treatment of premium and exercise.

Key ideas

• A futures option’s payoff depends on the futures price relative to the strike.
• Breakeven for a purchased put depends on the strike and premium paid.
• Tick size and tick value translate a quoted premium into contract cash value.
• The post asks about marking to market but does not provide a resolution.

Tags

# eurodollar future options basics


# eurodollar future options basics












I am trying to understand how to calculate the P&L on a eurodollar futures options position. Suppose I am looking at say Dec-2023 99.125 strike put options with a bid-ask of 0.2250 - 0.415.

Since this is not a front month contract CME says that the minimum price fluctuation is one half of one basis point (0.005 = $12.50).

let's suppose the the eurodollar futures go to say 99, then would the profit on the Dec-2023 Eurodollar future options be calculated as ((99.125 - 99) - 0.415) X 100 = $-29. (I'm assuming 1 contract).

So breakeven is: 99.125 - 0.415 = 98.71.

So would the premium (and therefore max risk) on this, assuming we buy at $0.415, be calculated as:

(0.415/0.005 = 83 ticks), 83 X 12.50 = $1,037.50.

One final thing, since this is an option on a future, is it marked-to-market like a future is, but just with maximum risk defined since we are buying a put?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.