Following the “maturation and success of CME‘s bitcoin futures introduced in December 2017″ and “in response to growing customer demand for additional regulated bitcoin derivative products” the CME Group is launching options on their Bitcoin futures, tomorrow on Monday January 13th. This should enable greater flexibility in managing Bitcoin price risk, while mitigating the risk of counterparty default through central CME Clearing, among other things.
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CME options give the buyer of a call or put the right to buyor sell one Bitcoin futures contract at a specified strike price at a future date. In-the-money options, expire into 1 Bitcoin futures contract which immediately cash settles to the CME CF Bitcoin Reference Rate (BRR). The options will have a tick size of $5 per BTC; with the contracts being 5 BTC, they will move in increments of $25. See image below for preiminary contract specifications.
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JP Morgan & Chase was quoted saying that they see high anticipation for CME’s Bitcoin options as Nikolaos Panigirtzoglou, a JP Morgan & Chase strategiest said , “there has been a sharp increase in the activity of the underlying CME futures contract over the past few days. This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract.” Curently the open interest on CME’s bitcoin futures is almost the highest its been since January 1, 2018 (April 2019 as the outlier). Last week the CME Group, tweeted that Bitcoin futures open interest (OI) in the first four trading days of the year is up 69% from year-end (see image below).”
CME Bitcoin Futures Volume & Open Interest Since Launch
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About a month ago, Bakkt launched their Bitcoin option contracts, being technically the first regulated and compliant Bitcoin options market in the world. Backed by Intercontinental Exchange Inc (ICE), the parent of the New York Stock Exchange, Bakkt (pun intended), saw tremendous growth since the launch of their futures platform in 2019, with daily volumes and open interest consistently breaking records allowing them to easily make the decision to launch options. For context, Bakkt‘s option pricing is based around its existing physical product, while CME’s pricing is dependent on its bitcoin index, the CME CF Bitcoin Reference Rate (BRR).
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In the same way that regulated Bitcoin futures expanded the possibilities for traders, regulated Bitcoin options will open up a variety of new trading strategies and opportunities as well, in turn bringing less volatility to this asset class and making a case for allocation in multi asset portfolios. “Derivative products introduce Bitcoin to a broader base of investors that hold vastly more wealth than individual or retail investors.” –Brian Armsrong.
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