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CME Group Crude Oil Spread Options Suite

Volumes advance with screen-based trading growing fastest

THFJ interviewed John Farley, portfolio manager at Emil van Essen llc, and Peter Keavey, executive director and head of North American Energy Products at CME Group to find out why volumes in energy spread options are rising so fast – and why a growing proportion of the volume is traded electronically.

John Farley has spent years as a proprietary trader and market maker in energy options, and he joined Emil van Essen in 2012 to help manage programmes. The largest has $120 million in a model-driven spread-trading strategy, focused mainly on trading commodity spreads. A cross-asset volatility programme also trades spread volatility, providing liquidity and making markets in OTC options on energy and other markets. Says Farley,“each programme benefits the others through modelling and sharing of information.”

Oil options liquidity at multi-year highs

Average daily volumes (ADV) in energy options are up 25.6% year-on-year for July, as shown in the CME Group Monthly Options Review.1 CME Group has been seeing multi-year highs in volume and open interest for crude oil CSO (Calendar Spread Options), where ADV has reached 17,652. Open interest is also at multi-year highs of around 730,000 contracts for crude oil CSO options (and stands at over 8.5 million for all types of energy options on CME Group exchanges).

To some extent, the steep increases in crude oil CSO option volumes may reflect similar advances in trading on the underlying oil futures: the CME Monthly Energy Review shows Light Sweet Crude Oil (ticker symbol: CL) futures volumes up 12.8% yearon-year in July 2015.

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