CME One-Month SOFR Options Share the Futures’ Last Trading Time
Summary
The document addresses whether CME options on one-month SOFR futures continue trading during the month when the underlying SOFR rate is measured. This matters for implied volatility modeling: if trading overlaps the averaging period, remaining uncertainty may decline as more daily rates are observed. The questioner could not determine from the cited futures rules whether the contract month and delivery month coincide.
The accepted response points to the options rule: trading in expiring standard options ends on the same date and time as trading in the corresponding futures. It also suggests checking CME’s calendar for the last trading date. The response does not establish whether the option or futures actually trades actively during the measurement month, and it does not resolve how that activity should affect a volatility surface. It clarifies the formal expiry relationship, while leaving the practical liquidity and modeling questions open.
Key ideas
- Expiring standard options stop trading when their corresponding futures stop trading.
- The options rule provides the relevant termination provision for CME one-month SOFR options.
- CME’s calendar can be used to check the underlying futures’ last trading date.
- Matching expiry dates do not establish whether the contracts trade actively during the measurement month.
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Full text
# Does the CME Option on 1M SOFR keep trading in the compounding period # Does the CME Option on 1M SOFR keep trading in the compounding period I am working with implied vol surfaces for money market options and trying to understand the dynamics of the CME's options on one-month SOFR futures. I want to establish whether trading ceases before commencement of the period over which the settlement rate is measured because, if not, the vol surface will need radical revision over that measurement month as it declines to zero (being an average of SOFR observed over the month). The comparable contract over three-month SOFR cuts off trading before IR measurement commences but when I look for analogous provisions in the CME rules for the one-month contract I cannot find them. According to the CME rules trading ceases at end of “contract month” (undefined) and settlement amount is based on average SOFR rate during “contract delivery month” (also undefined). If those two months are the same, or just overlap, the declining volatility issue arises, otherwise not. I couldn’t find anything to define the terms or say they are not the same. Relevant docs are: - SOFR 1-month option specs here. - CME rulebook re those here. - Price quotes here, that seem to indicate the 1M SOFR futures contract Nov 2022 SR1X2 (whatever timing of cease-trading and IR measurement that may imply) is still trading at 8 Nov, and that participants may trade the option over it, although I could see no bids or offers for the options. Can anybody point me to CME rules that make this issue clear. Thank you! ## Answer by stackmeistergeneral (score 1, accepted) https://quant.stackexchange.com/a/74308 I think your link under rules is to the futures rules. The rules for the options are here fwiw. It says Standard Options Trading in expiring Standard options shall terminate on the same date and at the same time as the termination of trading in the corresponding futures (Rule 46102.G.) But without getting buried in the rules, just look at the calendar tab and it will show the last trading date is the same as the underlying futures. Whether or not these trade actively during that month I have no idea.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.