What Are Mini-Sized Dow Options?
A mini-sized (or 'mini' or 'E-mini') Dow option is a type of index options contract for which the underlying assets are E-mini Dow Jones Industrial Average (DJIA) futures contracts. The underlying E-mini Dow is valued at 1/5 the value of the DJIA having a tick size of $5. Dow mini options are traded electronically through the Chicago Mercantile Exchange's (CME) Globex system.
Mini-sized contracts in futures and options make trading indices more practical, and also exist for a wide range of other indexes such as the Nasdaq 100, S&P 500, S&P MidCap 400, and Russell 2000, as well as commodities such as gold and currencies such as the euro.
- A mini-sized Dow option controls one underlying E-mini Dow futures contract, which itself is
- The underlying futures contract moves in one-point increments worth $5 each.
- The premium to buy a mini-sized Dow option is the price of the option multiplied by the multiplier of $5.
Understanding Mini-Sized Dow Options
Mini futures and options contracts allow investors to fine-tune their exposure and position sizes because these mini-sized products cost less than the standard futures contracts. Each one-point move in the E-mini Dow futures contract equates to $5. Options traders keep this in mind in regards to their position's delta.
A delta of -1 on a put option or +1 on a call option indicates that the option will move point-for-point with the underlying index. As the delta moves toward zero, even though the underlying futures contract moves $5 per point, the option contract may not.
E-mini options on the Dow Jones Industrial Average index are American style options, meaning that they can be exercised at any point before expiration. Exercising the option results in "physical" delivery of a corresponding position in the underlying cash-settled E-mini futures contract.
Each mini-sized Dow option controls one underlying E-mini Dow futures contract.
As of 2020, the E-mini Dow Jones contracts are the third most popular mini contracts on Globex, behind the Nasdaq 100 E-minis in second place and the S&P 500 E-minis as the most popular by volume. There is relatively little daily volume in the E-mini Dow options compared to other indices.
The mini-sized dow options trade under the symbol OYM, while Dow mini futures trade under the ticker YMM. They have expiries for March, June, September, and December. Trading on the options ceases on at 9:30 AM Eastern time on the third Friday of the contract month.
E-Mini Dow Options Pricing
The price of a mini-sized Dow option is the quoted price multiplied by the multiplier. Therefore, if the quoted price of an option is 300, the option costs 300 x 5, or $1,500. This is the premium paid for the option. The premium paid is the most an option buyer (call or put) can lose. A person buying the underlying futures faces losses of $5 per point, which could amount to significantly more than the fixed loss of the option premium.
A profit is made on an E-mini Dow call option if the price of the underlying index moves above the strike price plus the price of the option. For example, if the option's strike price is 26,000 and the option price is 800, the trader will be making money if the underlying index moves above 26,800.
In the case of a put option, using the same figures, the trader starts to make money once the index drops below the strike less the premium. In this case, 26,000 - 800, or 25,200.
Example of a Mini-Sized Dow Option Trade
Assume the underlying E-mini Dow futures, expiring in June, are trading at 25,648. It is currently mid-May, a trader believes that over the next month the underlying E-mini Dow futures will move considerably higher.
They purchase an options contract on the underlying with a strike price of 25,650. The option price is 400, multiplied by $5, for a total premium cost of $2,000 (plus commissions).
In order to break even on the trade, the underlying will need to rise to 26,050 (25,650 + 400).
- If at the June expiry the underlying futures contract is below 25,650 (strike price), the call option will expire worthless and the trader will lose the $2,000 they paid for the option (but not more).
- If the underlying is between 25,650 and 26,050 at expiry, the option will be in the money but the trade will still result in an overall loss. The closer the underlying is to 25,650 the more of their $2,000 they will lose. If the underlying is at 26,050 at expiry, they breakeven.
- For every point above 26,050, the trader makes $5 per point. So, if the underlying is at 27,000 at expiry, the option call buyer makes
$4,750 = ((27,000 - 26,050) x $5).
Calculated a different way, subtract the value at expiry less the strike price, multiply by $5, and then subtract the cost of the option.
27,000 - 25,650 = 1,350 x $5 = $6,750 - $2,000 = $4,750.