The CME Group is all set to launch yet another Bitcoin derivatives product in the form of Bitcoin Options in the first quarter of 2020. Its Bitcoin Futures contracts turned out to be a great hit among institutional investors and the group is hoping that the soon-to-be-launched Bitcoin Option would be a great hit as well, reported South China Morning Post
Bitcoin Options contracts allow investors to buy or sell an underlying asset at a specific “strike price,” on or before the expiry date. This way, traders can take advantage of any price movement, unlike Futures contracts where they are obligated to buy/sell at a contracted time and price.
Almost 50% of the trading volumes for CME’s Bitcoin Futures came from Asian and European investors, a development which has got the hopes of the exchange higher as it expects their Options contracts to be as popular, especially among Asian traders.
Tim McCourt, Global Head of Equity Products and Alternative Investments, said that the trading for Bitcoin Futures contracts has seen a great surge in recent times, something which would pave the path for other derivative products to be more successful. The biggest day for the Bitcoin Futures contract was on 13 May, when a record 34,000 Futures contracts equivalent to 1,70000 Bitcoin were traded.
McCourt believes that with Bitcoin Options, traders would be able to manage their risks better, he said,
“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’s] price”
Bitcoin Options can also turn beneficial for Bitcoin miners who can use the derivatives contract to hedge their production costs. Some Chinese miners have been using Futures contracts for hedging. This is the reason CME Group has high hopes from the Asian market.