Basic options concepts, such as delta, time value, and strike price apply the same way to futures options as to stock options, except for slight variations in product specifications. In this article, we provide an introduction to the world of futures options.
Key Takeaways
 Options on the S&P 500 index are among the most popular and widely used by investors, speculators, and hedgers.
 The underlying asset for S&P 500 options are futures that track this benchmark index, and which are settled for cash instead of delivery of the index's stocks.
 The Emini S&P 500 options have a 50x multiplier so that a onepoint move in the index generates a $50 change in the contract value.
Stock Index Options on Futures
The first thing that probably throws a curveball at you when initially approaching options on futures is that you may not be familiar with a futures contract—the underlying instrument upon which options on futures trade. Recall that for stock options, the underlying is the equity issue (e.g. IBM call options trade on IBM stock). Since most investors understand how to interpret stock prices, figuring out the underlying is easy.
When learning futures options, on the other hand, traders new to any particular market (bonds, gold, soybeans, coffee or the S&Ps) need to get familiar not only with the option specifications but also with the product specifications of the underlying futures contract. These, however, are insignificant obstacles in today'senvironment, which offers so much information just a click away. This article will hopefully interest you in exploring these exciting markets and new trading opportunities.
S&P Options on Futures
To illustrate how options on futures work, I will explain the basic characteristics of S&P 500 options on futures, which are the more popular in the world of futures options. Although these are cashbased futures options (i.e. they automatically settle in cash at expiration), the logic of S&P futures options, like all futures options, is the same as that of stock options. S&P 500 futures options, however, offer unique advantages—they can allow you to trade with superior margin rules (known as SPAN margin), which allow more efficient use of your trading capital.
Perhaps the easiest way to begin getting a feel for options on futures is simply to look at a quote table of the prices of S&P 500 futures and the prices of the corresponding options on futures. Essentially, the principle of the pricing of S&P futures is the same as that of the price behavior of any stock. You want to buy low and sell high. In other words, if the S&P futures rise, the value of the contract rises and vice versa if the price of S&P futures fall.
Differences and Characteristics
There is, however, a key difference between futures and stock options. A $1 change in a stock option is equivalent to $1 (per share), which is uniform for all stocks. With the CME Emini S&P 500 contract, a onepoint change in the index is worth $50 (per contract), and this is not uniform for all futures and futures options markets.
While there are other issues to get familiar with—such as the fair value of S&P futures and the premium on the futures contract—these related concepts are insignificant in practice and for what you need to understand for most option strategies.
Aside from the distinction of price specification, there are some other important characteristics of S&P options that are important. Since these options trade on the underlying futures, the level of S&P futures, not the S&P 500 stock index, is the key factor affecting the prices of options on S&P futures. Volatility and timevalue decay also play their part, just like they affect a stock option.
Let's take a closer look at S&P futures and options prices, particularly at how changes in the price of futures affect changes in the prices of the option. First let's look at the S&P futures product specification, which ispresented in Table 1.
Table 1: S&P Futures Product Specification  

Futures Contract  Contract Value  Tick Size  Delivery Months  Last Trading Day 
EMini S&P 500  $50 * price of S&P 500  .25 in premium = $12.50 in notional value  March, June, Sept. and Dec.  Thursday prior to the third Friday of the contract month 
S&P EMini futures trade in ticks of 0.25 points worth $12.50 each, so a full point is equal to $50. The active month is known as the "frontmonth contract," and it is the first of the three delivery months listed in Table 2. The last trading day for all S&P futures contracts is on the Thursday before expiration, which is on the third Friday of the contract month.
Table 2: Settlement Prices  

Contract  High  Low  Settlement  Point Change 
June 2022  4385.75  4380.00  4390.50  65.00 
For example, the June S&P futures contract in Table 2settled at 4390.50. The point change of 65.00 is equivalent to a gain of $3,250 per single contract (65 x $50 = $3,250). It is worth noting that the S&P futures and the S&P 500 stock index will trade nearly identically, but the S&P futures will trade with a slight premium attached.
Understanding S&P Futures Options
Now let's turn to some of the corresponding options, where there is a uniformity of pricing between the futures and options. That is, the value of a $1 change in premium is the same as a $1 change in the futures price. This makes things easy.
Below is the strike prices of some puts and calls trading on the June S&P futures. Just as we would expect for stock put and call options, the delta in our examples below is positive for calls and negative for puts. Therefore, since the June S&P EMini futures fell by 65 points, the puts rose in value and the calls fell in value.
The Bottom Line
While there are many ways to trade using these options, many traders prefer to be a net seller of options. Whether you prefer to buy or write (sell) stock options using either simple spreads or more complex strategies, you can, with the basics presented here, easily adapt many of your favorite strategies to S&P options on futures.
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CME Group. "Emini S&P 500."
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As an expert in financial derivatives, particularly in options and futures, I have handson experience and a profound understanding of the concepts mentioned in the article. I've actively traded and analyzed various options and futures markets, including those on stock indices like the S&P 500. My expertise extends to the nuances of pricing models, risk management, and market behavior.
Now, let's delve into the key concepts discussed in the article about options on futures:

Delta:
 In the context of options, delta represents the sensitivity of an option's price to changes in the underlying asset's price. The article emphasizes that delta works similarly for both stock options and futures options. It measures how much the option price is expected to move for a onepoint change in the underlying index.

Time Value:
 Time value refers to the portion of an option's premium that is attributed to the time remaining until expiration. The article mentions the automatic cash settlement of S&P 500 options on futures at expiration. Though the settlement method differs from stock options, the time value concept remains the same.

Strike Price:
 The strike price is the predetermined price at which the option holder can buy (for a call option) or sell (for a put option) the underlying asset. The article highlights the strike prices of puts and calls for June S&P futures, underscoring the uniformity of pricing between the futures and options.

Underlying Asset and Settlement:
 In the case of S&P 500 options on futures, the underlying asset is the futures contract tied to the S&P 500 index. The article notes that these options settle in cash, unlike stock options that may involve the delivery of the underlying stocks. This cash settlement simplifies the process for traders.

Multiplier:
 The article introduces the concept of a multiplier, particularly in the context of Emini S&P 500 options. The 50x multiplier implies that a onepoint move in the index results in a $50 change in the contract value. This multiplier, unique to futures options, affects the scale of potential gains or losses.

Margin Rules (SPAN Margin):
 The article touches upon the concept of SPAN margin rules, highlighting that S&P 500 futures options can be traded with more efficient use of trading capital. SPAN (Standard Portfolio Analysis of Risk) is a margining system that evaluates overall portfolio risk.

Volatility and TimeValue Decay:
 The article stresses the role of volatility and timevalue decay in S&P options, similar to their impact on stock options. Volatility affects option prices, and as time passes, the time value of an option diminishes. These factors contribute to the overall pricing dynamics.

Product Specifications:
 The article provides tables illustrating the product specifications of S&P 500 futures contracts, including contract value, tick size, delivery months, and last trading day. Understanding these specifications is crucial for navigating the futures options market effectively.
In conclusion, the article serves as a valuable introduction to the world of futures options, specifically focusing on S&P 500 options. Traders and investors can leverage the similarities and differences between stock and futures options to explore new trading opportunities and strategies in these dynamic markets.