CBOT Binary Options on the Target Federal Funds Rate are contracts that have fixed payouts based upon the relationship between the option strike price and the target fed funds rate (quoted in 100-minus-rate terms), as set by the Federal Open Market Committee (FOMC).  With Binary Options there is a defined risk and reward for both the buyer and the seller: there is a payout of $1,000 (the buyer receives and the seller pays) if the option expires in-the-money, and $0 if it does not.

Par is on the basis of 100 points, with one point equal to $10. The price is never less than zero points or greater than 100 points.

One point, equal to $10.

Customarily, options shall be listed for expiration in each of the next four delivery months. An option’s delivery month shall be determined by the concluding day of the regularly scheduled FOMC meeting that the option references, as shown in the FOMC meeting calendar at the time the option is listed for trading. The FOMC meeting calendar is maintained and published by the Board of Governors of the Federal Reserve at http://www.federalreserve.gov/fomc/#calendars

5:30 p.m. to 4:00 p.m., Chicago time, Sunday through Friday. Trading in an expiring option shall cease at 3:00 p.m. Eastern time (2:00 p.m. Chicago time) on the last trading day.

Option strikes shall bracket the prevailing target fed funds rate (expressed in 100-minus-rate terms). For newly-listed delivery months, strikes shall be listed in increments of 12.5 basis points, at the prevailing target plus twenty (20) consecutively higher and (20) consecutively lower strikes, subject to the constraint that strikes can never be less than 0.00 nor greater than 100.00.

An expiring option shall be cash settled with reference to the target fed funds rate (expressed in 100-minus-rate terms) that is in effect as of 5:00 p.m. Eastern time on the option’s last trading day. Customarily (though not always) this will be the outcome of the regularly scheduled FOMC meeting that the option references. The target fed funds rate shall be as found in the most recently published Statement of the FOMC, typically published immediately following adjournment of any FOMC meeting.

(See http://www.federalreserve.gov/fomc/#calendars.)

For details, consult Regulation 2036.01 in Chapter 20 of the Rules and Regulations of the Chicago Board of Trade.

For any binary put option with a strike greater than the target fed funds rate (expressed in 100-minus-rate terms) on the option’s last trading day, long position holders shall receive, and short position holders shall pay, $1,000. For any binary put option with a strike equal to or less than the target fed funds rate on the option’s last trading day, longs shall receive, and shorts shall pay, $0.

For any binary call option with a strike less than the target fed funds rate (expressed in 100-minus-rate terms) on the option’s last trading day, long position holders shall receive, and short position holders shall pay, $1,000. For any binary call option with a strike equal to or greater than the target fed funds rate on the option’s last trading day, longs shall receive, and shorts shall pay, $0.

All final pays and collects shall be made on the business day following the determination of the final settlement prices of the expiring binary options.

Electronic

Pro-rata with preferencing and priority orders (minimum of 25 contracts, maximum of 250 contracts)

Calls: BUSC, Puts: BUSP