At present, the cryptocurrency market is still in its infancy, and there are only a small number of trading and investment products in the traditional financial market. However, in the past few years, with the introduction of Bitcoin and other encryption asset-related products, such as BitMEX futures and Deribit options, the field of cryptocurrency continues to grow.
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At the same time, some mainstream financial entities have entered the growing industry through the introduction of cryptocurrency trading and investment products, including the cash-clearing bitcoin futures of the Chicago Mercantile Exchange (CME) and the physical settlement of bitcoin by Bakkt. Futures products.
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As early as September 2019, the Chicago Mercantile Exchange announced that it plans to launch bitcoin options trading products in early 2020.
In a recent interview, Tim McCourt, General Manager of the Chicago Mercantile Exchange Group and Global Head of Alternative Investment Products at the Equity Index, explained in detail the upcoming Bitcoin options and the overall status of options trading.
In December 2017, the Chicago Mercantile Exchange launched a cash-settled bitcoin futures transaction based on the Bitcoin Reference Rate (BRR). The bitcoin price given by the Bitcoin reference exchange rate refers to various factors including the spot trading volume of multiple exchanges within a specific time.
We are working hard to introduce options for Bitcoin futures. Bitcoin futures options will give the option holder (whether a put or a call) the right to buy or sell the relevant futures contract at maturity, but not necessarily an obligation.
This is very similar to how other options products on the market work. The difference is that the basis of the option contract, or the deliverable portion, is based on bitcoin futures.
Similar to Bitcoin futures, the Bitcoin options on the Chicago Mercantile Exchange also have an expiration date. McCourt explained that after the trader holds the option expired, he will receive a settlement of the bitcoin futures position, and when the relevant futures expire, the bitcoin futures position will be settled in cash.
According to the preliminary specification of the Bitcoin option recently announced by the Chicago Mercantile Exchange, the bitcoin option expires at the same time as the corresponding bitcoin monthly futures. This means that if a trader chooses to exercise an option (buy or sell a base position) when it expires, the position will immediately expire and be exchanged for cash.
The Chicago Mercantile Exchange option specification writes:
Options are based on positions in cash-settled futures contracts. In-the-money options are automatically converted into cash-settled futures, and the settlement price is the bitcoin reference exchange rate at 4 pm (London time) on the last Friday of the month of the contract.
This is in line with the Bitcoin futures specification of the Chicago Mercantile Exchange. According to the Chicago Mercantile Exchange website, “The transaction ends at 4 pm on London time, the last Friday of the contract month. If this day is not a business day in the UK and the US, then the transaction will be on the previous day (business days in the UK and US) termination."
Bitcoin futures on the Chicago Mercantile Exchange are due monthly. McCourt explained that the monthly options related to the Bitcoin futures on the Chicago Mercantile Exchange will also expire on the same day:
If your futures and options expire on the same day, they will be delivered at the same time.
Explain in detail the options trading
Option products in traditional markets have the right to buy and sell call and put options. When a trader buys a call option, the price of the optimistic asset will rise, similar to long. Conversely, when a trader buys a put option, he or she closes the position by selling the put option, thereby making money when the underlying asset price falls (depending on the entry price or execution price). This concept is similar to short selling. assets.
The simplest form of an option is to buy and sell assets at a predetermined price on a future date.
For example, for a physical settlement of a bitcoin option, the trader buys a bitcoin call option for $8,000. If he holds the option before the option expires, he can buy it for $8,000 in the future. Bitcoin.
If a trader buys a call option for a underlying asset, then he has the right, but not necessarily the obligation to purchase the underlying asset at a predetermined price, the so-called strike price, at a certain point in time. Conversely, if he buys a put option, he has the right to sell the underlying asset at a predetermined price at the scheduled time.
McCourt describes option products as “a way to gain exposure without having to buy or sell the underlying asset.” He also pointed out that risk management and position management may be the reason for participating in an option product. McCourt said:
If I am directly multi-asset and want to hedge the downside risk, then I might buy a put option so that when the asset price is not good for me, I know that I can sell at a certain time and reduce the loss.
Bitcoin Options Specifications for the Chicago Mercantile Exchange
According to the preliminary specifications for the Bitcoin options recently announced by the Chicago Mercantile Exchange, each option contract is the same as each bitcoin futures contract, equivalent to 5 bitcoins per contract.
The trading hours of the Chicago Mercantile Exchange Bitcoin options are the same as their futures trading products and also include the same listing cycle. The transaction ends on the last Friday of each contract month. The Chicago Mercantile Exchange website also said that some specifications for options products may change as it does not have plans to introduce bitcoin options products by 2020.