CME already announced that it’s planning to launch options for their Bitcoin futures contracts. Today they previewed some preliminary contract specifications to the upcoming options. The options on Bitcoin futures is expected to begin in 2020’s first quarter.
CME will use its own CME Bitcoin Reference Rate to price the new derivatives. The index was developed to reference the pricing data of a number of crypto exchanges. Big names like Coinbase, Bitstamp, Kraken, Gemini, and itBit are all included to give an accurate price reference. The futures contract CME is offering will make use of the BTC ticker and one contract will be equal to five bitcoins
The Chicago-based venue launched Bitcoin futures after several regulatory safeguards were added back in December 2017. It marked a significant step on the long road of global cryptocurrency acceptance and regulation.
The Contract Details
The previewed contract shows that it follows the European style of options. It may only be exercised at the option’s expiration date, and CME stated it would give traders the potential to save on margins via margin offsets. The minimum price movement CME will allow is $5 per bitcoin. This tick size will apply to all five bitcoin in the options contract. This means that the minimum tick size per contract, with all five bitcoins included, is $25 per contract.
While CME will develop cash-settled futures options, they made it clear that they do not plan on giving physically delivered options as well. Bakkt was one of the first groups that allowed physically delivered options on bitcoin, but it did not go so well for the firm at that point in time. As political events cause an influx of digital asset demand, the success of Bitcoin and the countless other forms of cryptocurrency will undoubtedly rise.
The BTC options CME is planning to offer is currently under review by the relevant regulators. It was made clear by the exchange operator that they will make the options available for use when the addition gains regulatory approval.
Price volatility has always been a problem with Bitcoin and cryptocurrency as a whole. Recently the currency seemed to become relatively more stable, but will never truly be predictable. Even so, exchanges have been racing to offer new instruments for crypto derivatives. Bakkt is an ICE-backed crypto exchange that has a similar vision as CME. They plan to launch their bitcoin options by the end of this year. Whether or not the plan will come to fruition remains to be seen.
Options and Futures
Options and futures serve more or less the same role for investors. It allows them to bet on an asset’s price trend without needing to hold the asset themselves and skirts the custodian and regulatory issues that come along with it. It should be noted that futures are considered riskier than options. While the options contracts’ only liability is a premium paid at the time of purchase, futures contracts only allow maximum liability.