SOFR Term Mid-Curves offer short-dated options on the deferred white quarterly contracts. SOFR, Mid-Curve, and Term Mid-Curve are all options on SOFR futures, with the different names reflecting the option expiration relative to the underlying SOFR futures contract. To better understand Term Mid-Curve options, we will review some basics.

SOFR futures and options are sometimes referred to by a color, which represents a different set of quarterly expirations.

An option with an underlying futures contract expiring in the first year of quarterlies is sometimes referred to as a white. For instance, if it is March 2024, a March 2024 option with a March 2024 underlying future would be called a white, or front, March. A March 2025 option with a March 2025 underlying future would be called a red March.

SOFR options expire prior to their underlying and will be associated with its underlying futures contract in terms of the month in which the futures contract Reference Quarter begins. For example, a Quarterly Standard SOFR option scheduled to expire in September will be exercised into the September futures contract which expires in December.

The expiration of a SOFR option ranges from one week out to almost four years, including 16 quarterly standard SOFR options as well as serial options that reference the same underlying as their nearest subsequent quarterly option.

For example, a November 2023 option would reference a December 2023 SOFR futures contract.

Sometimes market participants want to trade an option on an underlying futures contract that is over a year away, but they are looking to trade a shorter-dated option. That is where Mid-Curve options come in.

Mid-Curves are options on SOFR futures, but their underlying futures contract expires later than the option does.

CME Group lists Mid-Curve SOFR options with underlying futures from one to five years in the future, giving market participants the ability to trade a short-dated option on a far-out SOFR futures contract.

For example, assume it is currently March 2024. A market participant wants to trade an option on a March 2025 SOFR future – but doesn't want an option with over a year to expiration.

Using a mid-curve option, they can trade a March 2024 one-year mid-curve which expires in March 2024, but has an underlying future of March 2025.

Mid-curves are not limited to the first quarterly. There are five quarterlies and four serial options available on all mid-curves, as well as two weeklies on 1-, 2-, and 3-Year mid curves listed – covering multiple years of SOFR futures across the curve.

Market participants often package standard quarterly SOFR options and Mid Curve options, allowing for trading strategies utilizing multiple expirations with many different underlying futures.

In the past, there was no way to trade shorter-dated options on the second, third and fourth deferred white SOFR futures quarterly expiries. Term Mid-Curves fill this gap with short-dated options on the second white quarterly, third white quarterly, and fourth white quarterly. Listings include two serial and one quarterly option.

For example, a market participant who wants to trade an option on a June 2024 futures contract can now trade a March 2024 option on that futures contract.

Term Mid-Curves offer flexibility while sharing similar characteristics as existing options on SOFR futures, including tick and strike increments. They are available to trade via open outcry or on CME Globex. Additionally, they are block and cross eligible.

To learn more, visit cmegroup.com/SOFR.