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Derivatives Giant CME to Launch Bitcoin Options on Monday

Sead Fadilpašić
Last updated: | 2 min read

Major financial derivatives marketplace Chicago Mercantile Exchange Group (CME) is seemingly ready to launch its long-awaited options on Bitcoin (BTC) futures on January 13.

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As BTC’s market capitalization is growing, a number of options to trade this cryptocurrency is growing as well. We may not see ETFs (exchange-traded funds) in the U.S. for a while longer due to regulatory concerns, but Bitcoin options might also help bring more investors into this market.

Options are financial derivatives that provide the holder with the right to buy or sell an asset at a specific price on a predetermined date, but without the obligation to do so. This means that options allow the speculators among us to bet on a price rise or decline of an underlying asset using leverage.

On Monday, options on Bitcoin futures, with one contract representing BTC 5, offered by CME Group will be available for trading, which will enable greater flexibility in managing Bitcoin price risk and saving on potential margin offsets between Bitcoin futures and options, while mitigating risk of counterparty default through central CME Clearing, among other things, states the exchange’s website. As they’ve posted a reminder of the upcoming launch, it would suggest that everything’s going according to plan.

As reported in September, CME Group said it aims to launch options on Bitcoin futures in the first quarter of 2020, listing the benefits of the options. These include their usage like insurance policies to limit losses on a futures contract, for speculative purposes, as hedging instruments, and for efficiently deploying capital in the form of option premium. The January date was then announced in November, providing specific details about the upcoming contracts.

In general, the extreme volatility in the crypto market is frightening to almost any type of investor but, as we discussed, it may be an attractive opportunity for volatility traders who often use popular strategies straddle and strange to trade volatility.

Additionally, what we’re also seeing is an increasing acceptance of Bitcoin options by regulators and traditional institutions in general. In July 2017, a battle was won when the Commodity Futures Trading Commission (CFTC) approved LedgerX to be registered as a swap execution facility and derivatives clearing organization, while in June 2019, it approved the application of LedgerX as a designated contract market. LedgerX is one of the trading platforms where Bitcoin options are already available, along with Deribit, Quedex, and others, while the Cryptoverse is waiting for its launch by industry giants such as Binance and BitMEX.

Meanwhile, CME Group said it intends to double its monthly Bitcoin futures trading cap to BTC 10,000, and that it has already asked CFTC for regulatory permission. Yesterday they announced that Bitcoin futures open interest (OI) in the first four trading days of the year is up 69% from year-end OI.

In the meantime, Bitcoin is currently (14:40 UTC ) trading at USD 7,936. It’s up 0.5% in the last 24 hours and appreciated 9% in a week.