CME to introduce micro options on bitcoin, ether futures

Roughly two years after the launch of the world’s first exchange-traded crypto options, CME Group is looking to bring another level of diversification to cryptocurrency traders with two option contracts on micro Bitcoin and Ether futures.

CME Group

Closely tied to its older brothers, the smaller-sized contracts are based on the same underlying reference indexes, and will be settled in cash. CME’s newest derivative on the primary cryptocurrency will be priced off of the CME Bitcoin Reference Rate, an index that references pricing data from several cryptocurrency exchanges. They’ll settle into the CME Bitcoin futures contract, which trades under the ticker BTC and equals five bitcoins.

With extra regulatory safeguards, the Chicago-based venue introduced Bitcoin options in January 2020, marking a major step in the path to legitimate the cryptocurrency.

The micro contracts, which are expected to debut on March 28, will have just 1/10 of the notional value of the respective original contract. CME’s mini options are currently being reviewed by regulators, and the exchange operator confirmed that once the addition clears, they will be available for purchase.

Chicago-based CME said the move marks a new development in the nascent crypto derivatives market that will give new access to retail investors, either those looking to branch into different markets or struggling to participate due to limited capitalization. One-tenth of the size of standard contracts is also introducing professional traders to many benefits when trading these limited-risk contracts.

For investors interested in this new trading vehicle, the new contracts follow the European-style options, which may be exercised only at the expiration date of the option, i.e., at a single pre-defined point in time. CME said it would offer traders the potential to save on margins through margin offsets.

Both futures and options are a way for investors to bet on the trends of bitcoin price without having to actually hold the digital currency, which skirts regulatory and custodian issues. However, futures are in general riskier than options as the only financial liability for the latter is the premium paid at the purchase time. Futures contracts, on the other hand, involve maximum liability.

Tim McCourt, Global Head of Equity and FX Products, CME Group, comments: “At less than a year old, nearly 5.2 million combined Micro Bitcoin and Micro Ether futures contracts have changed hands. Building on the strength and liquidity of the underlying contracts, our micro-sized options will enable traders of all sizes to efficiently hedge market-moving events with greater precision and flexibility or fine-tune their cryptocurrency market exposure.”

“Micro options provide the targeted risk exposure that investors are looking for. We are excited to offer liquidity on the broad and growing family of CME Group cryptocurrency products,” said Joshua Lim, Head of Derivatives at Genesis Global Trading.

“Cumberland is excited to provide liquidity from day one in CME Group’s new Micro Bitcoin and Micro Ether options contracts, complementing our existing offering in the crypto spot and derivatives market,” added Rob Strebel, Head of Relationship Management at DRW.