I am working with implied vol surfaces for money market options and trying to understand the dynamics of the CME's options on one-month SOFR futures. I want to establish whether trading ceases before commencement of the period over which the settlement rate is measured because, if not, the vol surface will need radical revision over that measurement month as it declines to zero (being an average of SOFR observed over the month).
The comparable contract over three-month SOFR cuts off trading before IR measurement commences but when I look for analogous provisions in the CME rules for the one-month contract I cannot find them.
According to the CME rules trading ceases at end of “contract month” (undefined) and settlement amount is based on average SOFR rate during “contract delivery month” (also undefined). If those two months are the same, or just overlap, the declining volatility issue arises, otherwise not.
I couldn’t find anything to define the terms or say they are not the same. Relevant docs are:
- SOFR 1-month option specs here.
- CME rulebook re those here.
- Price quotes here, that seem to indicate the 1M SOFR futures contract Nov 2022 SR1X2 (whatever timing of cease-trading and IR measurement that may imply) is still trading at 8 Nov, and that participants may trade the option over it, although I could see no bids or offers for the options.
Can anybody point me to CME rules that make this issue clear. Thank you!