CME, the world’s largest futures exchange, today revealed preliminary contract specifications for its yet-to-be-launched options on Bitcoin futures contracts, which is expected to debut within the first quarter of 2020.
CME’s newest derivative will be priced off of the CME Bitcoin Reference Rate, an index that references pricing data from several cryptocurrency exchanges, currently made up of the likes of Bitstamp, Coinbase, itBit, Kraken, and Gemini. They’ll settle into the CME Bitcoin futures contract, which trades under the ticker BTC and equals five bitcoins.
With extra regulatory safeguards, the Chicago-based venue introduced Bitcoin futures in December 2017, marking a major step in the path to legitimate the cryptocurrency.
For investors interested in this new trading vehicle, the new contract follows the European-style options, which may be exercised only at the expiration date of the option, i.e., at a single pre-defined point in time. CME said it would offer BTC traders the potential to save on margins through margin offsets.
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The tick size, or the minimum price movement, for CME options is $5 per bitcoin. This means that the price movement for a single contract will move in increments of $5 and amounts to a total of $25 per contract.
Bakkt also races to bring BTC options
CME’s BTC options are currently being reviewed by regulators, and the exchange operator confirmed that once the addition clears, they will be available for purchase.
Although overall price volatility has declined, trading in crypto derivatives and the race to offer new instruments surged this year. Just last week, ICE-baked Bakkt revealed plans to launch its own option contracts by the end of the year.
Both futures and options are a way for investors to bet on the trends of bitcoin price without having to actually hold the digital currency, which skirts regulatory and custodian issues. However, futures are in general riskier than options as the only financial liability for the latter is the premium paid at the purchase time. Futures contracts, on the other hand, involve maximum liability.