Derivatives market CME Group has announced that it will offer options on bitcoin futures contracts from the first quarter of 2020. Maybe you remember CME, when the rate of bitcoin was $ 20,000 in 2017, CME launched futures on bitcoin. From that moment on the course collapsed.
CME was created after a merger of the Chicago Mercantile Exchange and the Chicago Board of Trade.
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The announcement by CME states that the launch of bitcoin options is intended to provide customers with “additional tools for precision hedging and trading.” The launch and the product still have to be approved by the regulatory authorities.
Options and futures?
The difference between a futures and options market is that investors on a futures market are contractually obliged to trade in the future on a certain date. An investor in the options market has the right to execute a transaction, but this is not an obligation.
An investor pays a premium in advance to purchase the option contract, and the risk is that this premium will be lost if the market moves in an unexpected direction. This is actually less risky than the futures market because an investor is technically infinitely at risk on a futures market.
The bitcoin options of CME
This product will be the first of its kind, at least in the US. No regulated bitcoin options are offered yet.
Tim McCourt, head of the stock index of CME Group:
Based on increasing customer demand and growth in our bitcoin futures markets, we believe that the launch of options offers our customers additional flexibility to trade and hedge their bitcoin price risk. These new products are designed to help institutions and professional traders manage their bitcoin spot on the spot market and to hedge bitcoin futures positions in a regulated environment.
The company indicated that it has seen twenty successful settlements for futures since its launch in 2017. There are more than 3,300 individual accounts that traded contracts. CME says that almost 7,000 bitcoin futures contracts are traded daily.
Not the only one on the market
The Chicago Board Options Exchange (CBOE) also offered futures on bitcoins but they discontinued this product in March 2019. From today, there is also a new competitor: Intercontinental Exchange and subsidiary Bakkt start offering a new futures product. Unlike the contracts of CME, Bakkt will, however, offer a physically arranged product.
This means that users of ICE and Bakkt must deposit and receive real bitcoin. With CME you pay in dollars.
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