For the SOFR complex, customers can create and trade options spreads that tick according to spread component legs.
The tick increment for SOFR, SOFR Bundle, and SOFR Mid-Curve options User Defined Spreads (UDS) is determined as follows:
- If all legs are fixed 1/4 tick, the spread will be fixed 1/4
- If legs are a combination of 1/4 tick and Variable Tick Table (VTT) value=12, the spread will be VTT=12 (0.50)
- If all legs are VTT=12, the spread will be VTT=12
- If any leg is 1/2 tick, the spread will be 1/2 tick
One exception is that the smallest tick will be used when all of the following criteria are met:
- bundles are part of the UDS
- at least two of the furthest underlying expiration dates are equal
- at least two of the furthest options expirations dates are equal
The minimum tick increment is defined in the instrument’s Security Definition (tag 35-MsgType=d) message in tag 969-MinPriceIncrement. The Variable Tick Table (VTT) values are defined in the instrument’s Security Definition (tag 35-MsgType=d) message in tag 6350-TickRule value.
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SOFR User Defined Options Spreads Examples
The following examples illustrate how tick increments are determined for the SOFR complex.
Example 1: All Legs are Fixed 1/4 Tick
If all legs are fixed 1/4 tick, the spread will be fixed 1/4 tick.
UDS Legs
- Buy BU5Z5 C0375: .25 tick
- Buy BU3F6 P9725: .25 tick
- Sell BU2H6 P0225: .25 tick
UDS Tick Result
- 969-MinPriceIncrement=.25
Example 2: Legs are Mix of 1/4 Tick and VTT=12
If the legs are a mix of 1/4 tick and VTT=12, the spread will be VTT=12.
UDS Legs
- Buy SR3G4 C0375: .25 tick
- Buy SR3H4 C9950: VTT=12
- Sell SR3M4 P0300: VTT=12
UDS Tick Result
- 969-MinPriceIncrement=VTT
Example 3: All Legs are VTT=12
If all legs are VTT=12, the spread will be VTT=12.
UDS Legs
- Buy SR3M4 P9425: VTT=12
- Buy SR3U4 C9950: VTT=12
- Sell SR3Z4 P0300: VTT=12
UDS Tick Result
- 969-MinPriceIncrement=VTT
Example 4: A Leg is 1/2 Tick
If any leg is 1/2 tick, the spread will be 1/2 tick.
UDS Legs
- Buy SR3M4 C0375: .25 tick
- Buy SR3U4 C9950: VTT=12
- Sell SR3Z4 P9575: .50 tick
UDS Tick Result
- 969-MinPriceIncrement=.5
Example 5: Bundle Exception
In this example, the legs are a combination of 1/4 tick and VTT=12, but a bundle is part of the UDS and the expiry date of the underlying future and option are the same. As a result, the smallest tick (.25) is used.
UDS Legs
- Buy SR3M4 C0200 from Bundle: .25 tick
- Buy SR3U4 C9950: VTT=12
- Sell SR3Z4 P9937: VTT=12
UDS Tick Result
- 969-MinPriceIncrement=.25