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CME's single-stock futures rev up to overtake ‘ugly’ options trade

New cash-settled contracts with EFP facility could be an appealing alternative to reverse conversions

CME-single-stock-futures-GettyImages-1616533914
Credit: Risk.net montage

Dealers looking to optimise equity funding costs and balance sheet usage often resort to a complex option structure known as a reverse conversion, or revcon.

The trade involves shorting a stock and then selling a put and buying a call on the same name. This creates a synthetic long forward position. The stock sale releases cash and locks in an options implied financing rate, which can be cheaper

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