Slight variations in options pricing in option on E-mini stock indexes produce valuable trading opportunities, writes Paul Cretien.

The major stock indexes – S&P 500, Dow Jones 30, Nasdaq 100 and Russell 2000 – can be accessed through many products, including options on mini index futures, or E-Mini contracts.

The E-minis also show interesting interplays with respect to the indexes themselves. For example, the two charts below — “Call Options on Index E-Minis,” — present two very closely related pairs. The higher price curve is shared by the Russell 2000 and Nasdaq 100 indexes – with the added height attributed to the options market knowing that these two indexes (and the stocks they represent) should have relatively large volatility. Their volatile nature makes them more valuable as options that need to move quickly before their expiration dates.

Call Opyions Chart

Call Options Emini

With comparatively low volatility due to slower moving stocks within the indexes are the S&P 500 and Dow Jones 30. This pair, like the Nasdaq 100 and Russell 2000 combination, are so closely spaced around their price curve that they obviously have very similar responses to broader changes in equities.

The large table (Trading Call Options on Index E-Mini’s) applies the LLP Options Pricing Model to September 2019 E-Mini futures to calculate the call options prices curves and to find possibly overpriced or underpriced options that might be sought or sold for short-term profits.

Table

In terms of price variances around their predicted call price curves, the Russell 2000 E-Mini options have more trading opportunities than the Nasdaq 100 options. At this time, both the Dow and S&P index E-mini’s have more trading potential than the Russell and Nasdaq 100 E-mini’s, with greater variances around their respective option price curves.

In addition to trading price variations around predicted values, E-mini index options should be valuable in taking advantage of index price trends since the wide range of puts and calls may be used for price gains as well as for covering risks of price changes.