ZN &ZB options

K

Kicking

I am looking to make a trade in interest rates. I took a small position in TLT options, and I am now looking at ZN July options (because the move I want to profit from looks imminent) . I never traded futures options. Do those expire in July exercising into September futures or do they expire at the end of June ? Here is what the contract specs say for the last trading day:

Options cease trading in the month prior to the delivery month of the underlying futures contract. Options cease trading at the same time as the underlying futures contract on the last Friday preceding by at least two business days the last business day of the month preceding the option contract month.

Is there anything I should know about those options before making the plunge coming from ETF options ? Do you get executed when posting offers or you must pay the spread otherwise you may never trade ? Are ZB options less liquid than ZN options?
 
That language is so hard to interpret that you should just check the notice calendar under TEN YEAR NOTE OPTIONS. Here it is:

http://www.cbot.com/cbot/docs/59721.doc

For July ZN, the last trade date is June 24, 2005. Note that it is a week after stock options expire which can be confusing. Each month is different though so check the calendar.
 
Also: July ZN will exercise into September ZN futures if they expire in-the-money.

The spreads are quite reasonable at some hours of the day, but other times the market makers will just disappear. You can't always count on having a bid/ask to close your options position, but of course you can always use the underlying to adjust. I would plan on that.
 
If you have pit-access through your broker I would recommend using that venue during US market hours (7:20am-2:00pm). There are tons of locals down on the CBOT floor that provide huge liquidity during those hours and will hit your bid or lift your offer, even on low delta stuff, if you are doing smaller size. A lot of the same groups post bids/offer in the electronic options, but I would recommend only doing these during European hours (from 2am till about 6:30am). Overall the US markets are much tighter and you don't have to worry about getting screwed because of call-around markets like those on Eurex options. Good luck. Let me know if you have any more questions.
 
mcurto - I would ask about the electronic options, I use IB.

I trade almost strictly the bonds and notes and have often wanted to trade the options, but the electronic versions seem to have so little volume that it does not appear to be worth the try.

When I wanted to trade the options I used TLT as Kicking mentioned. But the spreads are real good.

Is trading the pit the only way to do this?

Thanks, Chris
 
If you want to trade the US Treasury options at this point in time using the pit is still the best way. The biggest locals will quote any market fairly tight no matter how complex or big the order. Look at the open interest in the CBOT options compared to Eurex options. I believe this is purely a function of deep, liquid, and especially transparent, open-outcry option markets. Once the big locals start quoting the screen I would send your business there, at this point though stick to the pit, your fills will be much better.
 
ECBOT trading hours for ZN options ...

2:00 pm - 2:15 pm CT >>> nobody there

2:15 pm - 7:20 am CT >>> EMMs (electronic market makers)

7:20 am - 8:30 am CT >>> nobody there

8:30 am - 2:00 pm CT >>> MMs respond to RFQ (request for quote)
 
no market in September and August ZN puts this morning during Greenspan speech ! I figure TLT options are better for now
 
found out I had to request a quote . What does that mean when they are not quoting ? how do you know they will give you a quote or trade with you? Do they quote and trade during high volatility such as Fed day, shortly after NFP figures etc.?
 
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