Investor hunger for yield drives S&P 500 dividend option growth

by Christian Dass and Bernard Goyder

Investor demand for yield in the US is helping fuel growth in the market for S&P 500 Index dividend futures and options — a niche corner of the derivatives world where America has long trailed Europe.

The contracts, which wager on cumulative dividend payments from companies in a gauge such as the Euro Stoxx 50 Index, have long been popular in Europe as a vehicle to speculate on corporate payouts and hedge long-term liabilities. Now the US is catching up. 

Trading in CME Group Inc. dividend futures climbed 40% in the first half of 2025. Aggregate open interest in S&P 500 dividend options more than tripled over the past year, albeit from a low base since the instruments were just launched in January 2024.

“Since the CME launch, we see volumes growing every day on S&P dividend options,” said Nabil Hussain, managing director at London-based brokerage Vantage Capital Markets. “With the US dividend growth being more progressive in nature year-on-year, we do see buyers of upside calls and call spreads but not as steep upside strikes as we’ve typically seen on the European dividends.” 

The two markets have striking contrasts that underscore differences in corporate culture, as well as the more active retail trading in the US. Take the shape of the futures curve, which is opposite in the two regions. Longer-dated US dividend contracts are more valuable, while European futures become less expensive the further out you go. 

One possible reason: payouts in the US tend to be more reliable than in Europe, where market shocks can lead to companies slashing dividends, Maxwell Grinacoff, UBS Group AG’s head of US equity-derivatives research, said in an interview. Some US chief financial officers can be more stubborn than their European counterparts about keeping payments high, he added. 

Hopes that technology titans like Amazon.com Inc. will finally begin paying a dividend also help lift the S&P 500 curve versus that for the Euro Stoxx 50, Grinacoff said. Another factor that can make the European market more volatile is the smaller number of constituents, meaning a change in payouts by a single company can have an outsized impact. 

The development of options is allowing investors to take a more nuanced view of how much companies will pay out in dividends to their shareholders, which is affected by many of the same fundamental factors as the broader stock market. 

While over the long term US corporate payouts are expected to increase, the path to reaching those levels could be windy. That was made clear in April, when the December 2026 S&P dividend contract fell 11% in a matter of days, driven by concerns about a broader market crash. 

“April’s tariff move taught us that the route to get there may not be linear, and thus has the potential to create a volatility environment that entices a more diverse variety of counterparties,” Hussain said.  

UBS strategists including Kieran Diamond noted last month that because the US dividend moves were much larger relative to the level of trailing realized volatility, there were larger losses for investors who had more leveraged exposure in what is viewed as a more defensive area of the dividend market.

This led to a repricing of the S&P 500 dividend options curve with puts notably bid up after April, betting on bigger reductions in payouts.

On a fundamental basis, opportunity in both Europe and the US appears to have shifted to 2027, with 2026 futures only offering small upside versus the Institutional Brokers’ Estimate System projections for the years.  

In a similar way to how hedge funds in Europe have gained upside exposure to dividends via call ratios and call flies, Grinacoff favors similar strategies in S&P 500 dividends. 

Europe’s vast structured products market also has knock on effects that are less present in the US. Banks in Europe often turn to the Euro Stoxx 50 dividends market to hedge issuance of autocallables, a type of structured product that pays out a high coupon if a basket of stocks rises above a certain threshold. 

Dealers in the region are generally “left long dividend risks, typically from structured product instruments, so they need to sell out the curve,” Grinacoff said. That can weigh on longer-dated contracts.

Despite April’s price action, dividend dislocations in the S&P 500 are likely to be less extreme than in the Euro Stoxx 50, as US autocallable issuance typically involves “worst-of” baskets where dividend sensitivity accumulates in the worst-performing leg — which has rarely been the S&P 500 recently. 

JPMorgan Chase & Co. strategists wrote in a research note in June that positioning in the structured products “suggests moderate risk to S&P 500 dividends from technical selling by autocallable hedgers in case of a market selloff.”

The rise of dividend options means the futures curve is more accurate than ever before, according to CME. The tools allow investors “to be even more precise about what level of dividends they’re trying to manage around,” said Tim McCourt, global head of equities, FX and alternative products at the firm. 

The daily battle between hedgers and speculators in the listed derivatives market gives investors a more accurate picture of market consensus around the path of future dividend payouts, McCourt added. 

“This market wouldn’t work if everyone had the same long-held view about where S&P dividends were going,” he said.

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