The Chicago Mercantile Exchange (CME) Group announced last September that it would be launching options on its Bitcoin futures contracts in Q1 of this year. Bitcoin options on CME are set to launch on Jan 13, just five days away, pending regulatory approval.
CME, the world’s largest futures exchange, was one of the first institutional financial bodies to offer futures trading on Bitcoin in December of 2017 amid an epic rally that took the leading cryptocurrency to its all-time high. The announcement offering options comes as demand continues to skyrocket for cryptocurrency futures offerings.
Derivative trading on Bitcoin has become very popular as of late with CME, and CBOE offering institutional cash-settled options since 2017. Bakkt has also recently joined the ranks, providing a new opportunity to have futures contracts settled physically.
CME Bitcoin Option Offerings
The Bitcoin options offering from CME will add to the company’s repertoire and hopefully appease the growing interest of investors on the platform. CME also reportedly filed to double its monthly Bitcoin futures open positions limit to 10,000 BTC in September last year due to increased demand.
The options will allow traders to use alternate strategies and allow traders to save on margins using margin offsets. These upcoming options will have a tick size of $5 per BTC and thus, with the contracts being 5 BTC, will move in increments of $25.
— CME Group (@CMEGroup) October 30, 2019
To understand the relationship between options on Bitcoin futures and Bitcoin options, CME explains:
“CME options on Bitcoin futures give the buyer of a call/put the right to buy/sell one Bitcoin futures contract at a specified strike price at some future date. Upon termination of trading, in-the-money options, expire into one Bitcoin futures contract which immediately cash settles to the CME CF Bitcoin Reference Rate (BRR).”
Signs of a Maturing Market?
The evolution of Bitcoin into a more traditional investment arena with derivative trading has been heralded as a sign of maturity. It is a gateway for traditional investors to get exposed to the often volatile, but exciting market and could lead to further growth and adoption for the asset.
On the other hand, there are some that feel this influx of speculative traders only brings more clueless traders to the nascent market which could be damaging to its maturation. For traders to essentially make bets on the movement of the market without having to own any of it seems to promote volatility without any risk being placed on the trades who settle in cash. It is for this reason that many see Bakkt as a potentially revolutionary product to breach the middle ground.