CME Is Expecting Bitcoin Options to Be As Popular as BTC Futures & A Hit with Asian Traders
Recently, we reported the CME Group is planning the launch the options on bitcoin futures contracts in the first quarter of 2020.
The US futures exchange is expecting the upcoming launch of the new crypto derivative product to attract attention from cryptocurrency traders and miners in Asia.
Given the fact, about half of the trading volume for futures is accounted for by Asian and Europian participants, this could very well prove to be true.
Tim McCourt, CME Group’s global head of equity products and alternative investments said he expects this to be as popular as bitcoin futures, which the platform launched two years ago.
More Exposure to Bitcoin and Manage its Price Risk
Trading for bitcoin futures, McCourt said he has picked up recently. Back on May 13, a record 34,000 futures contracts, worth $1.3 billion, were traded. Year-to-date, about 7,000 BTC futures contracts have traded on CME Group on average per day.
Now with options, traders will be able to gain exposure to or manage BTC’s price risks.
“While futures give you a one-for-one exposure, whereby the movement of the underlying bitcoin translates directly to a specific dollar value per contract, an option gives you varying strike-price levels and can give you either downside protection, or upside exposure at a fraction of the underlying [assets] price,”
An options contract gives an investor the right to buy or sell the underlying asset, here BTC, at a specific price on or before the expiration date. This allows investors the opportunity to take advantage of the price moves without owning a futures position.
Bitcoin futures contracts, on the other hand, put an investor under the obligation to buy or sell the underlying asset at a contracted price at a specified future time.
No physically-settled BTC futures contracts for CME
Bitcoin options, according to McCourt will enable miners to more accurately hedge the cost of their production. Some miners with operations in China are reportedly already using BTC futures contracts to hedge.
During the last quarter, BTC lost over 40% of its value that forced many miners to shut down their rigs as the price dropped below their cost of production.
While Bakkt, a rival exchange, has launched a physically-delivered BTC futures contracts, McCourt said CME Group has no plans to offer similar physically-settled contracts.
Currently, the platform’s focus is on securing regulatory approvals and finalizing the preparations for the new options contracts' launch, he said.
However, Jeff Dorman, chief investment officer and co-founder of Arca says the real opportunity is in adding more cryptos.
“There is only so much you can do with just bitcoin alone, [as] there are only that many venues a fund would need to trade bitcoin and bitcoin-related securities,”
said Dorman, who is expecting the CME Group to face stiff competition.