CME Group Making Gold Options More Tradeable

CME Group (CME) published the following product update today:

Effective Sunday, October 11, 2009 (trade date Monday, October 12), the following changes to the listing rules for COMEX Gold options will occur:

The strike price interval will be set to $5.00 (CME Globex strike price increment=5) increments for all trading months on all venues regardless of the level of the underlying futures prices. Currently, the strike price interval is dependent on futures price levels as follows: $5.00 (5) if futures prices are under $500; $10.00 (10) if futures prices are between $500 and $1,000; and $25.00 (25) for futures prices above $1,000.

In addition, the strike price listing will be expanded from ATM ± six to ATM ± 20 strike prices.

This is good news. When gold futures made their most recent foray above $1000 in early September, traders who wanted to enter nimble options positions were stuck with call strikes at 1025, 1050, etc. Applying a $5 increment makes sense, and should make options on COMEX gold futures more attractive. I wonder whether this decision was made in response to the increasing popularity of options on GLD, the SPDR gold ETF.

Disclosure: short GC

Comments

[The Recusant:]

Would not this make gold options even more volatile? Why do I suspect banks are smugly laughing up their sleeves over this change?

There is something terribly wrong in our country. End it...buy gold.

Oct 02 12:53 PM

[Condor Options:]

No, this would not make gold options "even more volatile." Historical volatility is a function of changes in the price of an asset. Implied volatility is a function of expectations about future price changes. Neither is a function of the number of strike prices available for trading on an exchange.

You probably suspect banks are "smugly laughing up their sleeves over this change" because you are a conspiracy theorist and/or because you have misunderstood fundamental aspects of the options market.

I fail to see how buying gold would "end" whatever it is that is "terribly wrong in our country."

On Oct 02 12:53 PM The Recusant wrote:

> Would not this make gold options even more volatile? Why do I suspect
> banks are smugly laughing up their sleeves over this change?
>
> There is something terribly wrong in our country. End it...buy gold.

Oct 13 08:27 AM