CME Group Announces Launch of Options on Bitcoin Futures in Early 2020

Derivatives giant CME Group just announced it will offer options on its bitcoin futures contracts by Q1 2020.

The Chicago-based derivatives marketplace first launched its bitcoin futures back in December 2017, around the same time as its main competitor, the Chicago Board Options Exchange (CBOE).

In an announcement on Friday, CME said they were launching bitcoin futures options to provide clients with “additional tools for precision hedging and trading”.

The launch is pending regulatory review.

When bitcoin futures launched back in December 2017, it created enormous enthusiasm across the bitcoin community. For the first time, a bitcoin-like investment product was available through a traditional financial marketplace. The launch was partly responsible for bitcoin’s surge to $20,000 later that month.

Bitcoin futures allow traders to have a stake in the future price of bitcoin. Some traders use bitcoin futures to hedge markets, for example, and protect against future price surges or drops.

Bitcoin futures options are based off of futures contracts. An option on a futures contract gives the holder the right, but not the obligation, to buy or sell a specific futures contract at a strike price on or before the option’s expiration date. It’s similar to a stock option, but based on a futures contract instead of a stock.

7,000 Bitcoin Futures Are Traded Every Day on CME

CME Group claims that nearly 7,000 bitcoin futures are traded on average each day on their derivatives exchange. Since launching in 2017, CME has seen 20 “successful” futures expiration settlements, with more than 3,300 individual accounts trading the contracts.

CBOE shut down its bitcoin futures trading marketplace in March 2018 just a few months after launch. Today, CME is the sole US-based provider of bitcoin futures.

However, that will change on Monday when the Intercontinental Exchange (ICE) and its subsidiary Bakkt begin offering a new futures product.

ICE’s futures product will be different, however: unlike CME’s cash contract, ICE will offer a physically settled product, which means customers buying bitcoin futures will receive actual ‘physical’ bitcoin instead of the cash equivalent of bitcoin.

Tim McCourt, Global Head of Equity Index and Alternative Investment Products at CME Group, describes what the launch of bitcoin futures means for CME:

“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.”

In December 2017, bitcoin surged to an all time high of $20,000 after CME and CBOE launched bitcoin futures contracts. With ICE launching bitcoin futures next week and CME launching bitcoin futures options contracts early next year, is it possible we could see a similar surge over the coming months?