The Chicago Mercantile Exchange reports that volume on the new options on bitcoin futures contracts double in the latest week, just after their release. Bitcoin prices have been rising as investors attempt to determine if riskier assets will take a breather. Futures on bitcoin has experienced a solid performance. As of last week the CME reports that futures offerings saw total volumes of 7,245 contracts (which is approximately $313 million). The new option will provide a new leverage security that will allow an investors to trade bitcoin.
Futures and Options
The Chicago Mercantile Exchange reported that its new options on futures contracts doubled its volume immediately after the contracts were launched. An option on a futures contract is the right but not the obligation to purchase a futures contract at a specific price on or before a certain date. The strike price of the option is the price that both parties agree to buy the futures contract. The options expiration date is just ahead of the futures settlement date.
According to the CME, Monthly contracts listed for 6 consecutive months and 2 additional December contract months. The CME also states that ff a December contract month is among the 6 consecutive months, only list 1 additional December contract month. Each futures contract is worth 5-bitcoin. With a price of approximately 8,500 each bitcoin futures contract is worth $43,000. The leverage that is offered by the CME on bitcoin futures contracts is approximately 2.7 to 1.
Option contracts provide investors with additional leverage. When you purchase an option on a futures contract you are entitled to purchase up to 100-futures contracts at the designated price for everyone options contract you own. This means that instead of posting slightly more than $16,000 for each bitcoin futures you only need to post the premium of the option you own. The leverage you hold can be a multiple of the leverage that you hold when you own futures on bitcoin at the CME. The most you can lose on an option trade when you purchase a call or put is the value of the premium of the option.
Volumes Pick Up
The Chicago Mercantile Exchange reported that ss of January 17, volume was 122 contracts, worth 610 BTC. By comparison, on day one, volume was 55 contracts. Open interest on options stood at 219 contracts equivalent to 1,095 BTC. While these number are still relatively small, there is a lot of hope given the doubling of volume on day 2.
Volume at the CME are Relatively Light
Despite a new option on futures contracts, the volume that are experienced at the CME are light compared to some of its competitors. According to its website, Binance’s Bitcoin futures traded 111,000 BTC or $959 million during the same period that the CME reported volumes of 33% that level.
The option on futures should continue to experience increasing volumes as traders become familiar with the volume and liquidity provided by the exchange.