All You Need to Know About CME Group's Upcoming Options on Bitcoin Futures

Siamak Masnavi

This article tries to answer all the questions you may have about CME Group's upcoming launch of options on Bitcoin futures.

But first, a bit of background...

As CryptoGlobe reported on September 20, CME Group ("CME"), the world's "most diverse derivatives marketplace" announced that it was planning, subject to regulatory approval, to launch in Q1 2020 options on its cash-settled BTC futures contracts (which were launched in December 2017).

Tim McCourt, CME's Global Head of Equity Index and Alternative Investment Products, said back then:

Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk. These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment.

Well, earlier today, CME reiterated that, subject to regulatory approval, it will launch options on BTC futures in Q1 2020. More importantly, for the first time, it provided details about these options.

  • Each options contract settles into one Bitcoin futures contract (representing five BTC).
  • CME Bitcoin futures are based on the CME CF Bitcoin Reference Rate (BRR), a Bitcoin pricing product launched in 2016 that is "a daily reference rate of the U.S. dollar price of one bitcoin as of 4 p.m. Greenwich Mean Time."

Each day, the BRR aggregates the trade flow of major bitcoin spot exchanges during a specific one-hour calculation window. This one-hour window is then partitioned into 12, five-minute intervals, where the BRR is calculated as the equally-weighted average of the volume-weighted medians of all 12 partitions.

  • These options are available for trading on CME Globex and CME Clearport. (Trading Hours: 5:00 p.m. – 4:00 p.m. Central Time, Sunday to Friday)
  • Prices are quoted in USD per one BTC.
  • The minimum block size is 5 contracts.

CME says that this new product helps Bitcoin traders "to save on margins, through margin offsets" and reduces "risk of counterparty default through central clearing."

Bakkt, the crypto custodian and crypto derivatives exchange subsidiary of Intercontinental Exchange (ICE), the operator of the New York Stock Exchange (NYSE), announced on October 24 that it will launch the first CFTC-regulated options contract for its physically-settled Bitcoin (BTC) futures on December 9.

Featured Image Credit: Photo via Pixabay.com