Key facts
- CME Group's single-stock futures are gaining traction among dealers.
- Dealers use these futures to optimize equity funding costs and balance sheet usage.
- Single-stock futures are an alternative to reverse conversion options trades.
- A reverse conversion involves shorting a stock and selling a put while buying a call to create a synthetic long forward position.
Dealers are increasingly turning to CME Group's single-stock futures as a way to manage their equity funding costs and balance sheet utilization. These futures are presenting a viable alternative to complex options strategies, such as reverse conversions, which are often employed to establish synthetic long forward positions in specific stocks.
A reverse conversion typically involves shorting a stock and simultaneously selling a put option while buying a call option on the same security. This strategy effectively creates a synthetic long forward position, allowing dealers to lock in an options-implied financing rate that can be more cost-effective than other methods.