CME Group to offer options contracts for micro Bitcoin, Ethereum futures

CME Group, “the world’s largest derivatives marketplace,” said today that it will introduce options on Micro Bitcoin and Micro Ether futures on March 28, pending regulatory review.

According to CME’s announcement, its new Micro Bitcoin and Micro Ether options contracts will be “one-tenth of their respective underlying tokens in size.” They will offer a variety of market participants more ways to manage their exposure to Bitcoin and Ether, the two largest cryptocurrencies by market capitalization. 

As of the morning of March 1, the market capitalization for Bitcoin is $830.3 billion and Ether is $355.4 billion, according to CoinMarketCap.com. The price of one Bitcoin is $43,808; Ether’s price is $2,963 per coin.

The Micro Bitcoin and Micro Ether options contracts “will complement CME’s existing Bitcoin options contracts, sized at five bitcoin and launched in 2020.” What’s more, the options contracts will enable “clients to express long- or short-term views with a choice of monthly as well as Monday, Wednesday and Friday weekly options expiries,” CME Group said in its announcement. 

How it works

The relationship between Micro Bitcoin and Micro Ether options — and their underlying futures contracts — is a close one. CME options on Micro Bitcoin and Micro Ether futures will give the buyer of a call/put the right to buy/sell one Micro Cryptocurrency futures contract at a specified strike price at some future date. Once trading closes, each in-the-money Micro Bitcoin or Micro Ether option delivers one contract of the respective future which underlies the option, CME said.

So how do Micro Bitcoin and Micro Ether options relate to the spot cryptocurrency market? The value of the micro cryptocurrency options is tied to the price of underlying micro cryptocurrency futures. Micro cryptocurrency futures, in turn, fluctuate in value relative to price movements in spot Bitcoin and Ether. At expiration, options that possess value — known as “in-the-money” options — will deliver a futures contract which may or may not immediately expire, depending upon the option expiry chosen, CME said. 

However, Micro cryptocurrency futures expire into the value of a reference rate tied to spot transactions in the respective coin. Neither Micro Cryptocurrency options nor futures will deliver underlying cryptocurrencies, although the value of these contracts are closely tied to the movement of the associated coin, CME explained.

“At less than a year old, nearly 5.2 million combined Micro Bitcoin and Micro Ether futures contracts have changed hands,” said Tim McCourt, CME Group’s global head of Equity and FX Products, CME Group. “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.”