Analysis

Options on bitcoin futures from Chicago Mercantile Exchange (CME) got off to a good start on Monday, seeing trading volume reach 55 contracts in the opening session.

That amounts to a notional volume of about $2.3 million or 275 bitcoin, with each contract worth 5 BTC. Also, only call options traded on the first day, as noted by Skew.com, provider of data analytics for Bitcoin and Ether derivatives.

An option contract is a derivative based on the value of an underlying instrument that provides the right, but not the obligation, to buy or sell the specified amount of the underlying on or before the expiration date. A call option gives the holder a right to buy, while the put option gives the holder the right to sell.

The growth of bitcoin options is widely being touted as the move in the right direction for the cryptocurrency, as it may boost institutional participation and help bitcoin evolve into a mature asset class.

Institutional trading platform Bakkt, a subsidiary of Intercontinental Exchange, launched bitcoin options on Dec. 9, with very little action on the first day. CME’s launch-day trading volume was nearly double the average daily volume seen on Bakkt since then.

Options volumes on the CME may rise rapidly, too, as it has a robust, liquid underlying futures market.

“Successful options products require a robust, liquid underlying futures market, our CME Bitcoin futures have rapidly evolved over the last two years to become one of the most liquid, listed bitcoin derivatives products in the world, averaging nearly 6,400 contracts (equivalent to 31,850 bitcoin) traded each day in 2019,” Tim McCourt, managing director at CME Group, wrote in a LinkedIn post.

CME’s bitcoin futures contracts witnessed increased participation in the days leading up to the options launch. The number of open positions held by traders, known as open interest, increased to more than 5,000 contracts (equivalent to over 25,000 bitcoin) in the first four trading days of the year.

Disclosure: The author does not currently hold any digital assets.

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