Understanding options on Micro Bitcoin and Micro Ether futures

Market participants interested in expressing an opinion on or hedging their exposure to bitcoin or ether risk now have another option at their disposal. Options on Micro Bitcoin and Micro Ether futures are right-sized tools that provide a smaller notional value and precision risk management to all traders. 

Let’s review some product information that is important to know when trading these options.

Micro options will derive their value from their respective Micro futures contract. A variety of expirations will be available on Micro Bitcoin and Micro Ether options.  Along with monthly options that align with the expiration of the underlying futures contract, shorter-term weekly options, with Monday, Wednesday, and Friday expirations will be available for even greater precision and flexibility.  At option expiration, in-the-money options will deliver their respective nearest expiring Micro Cryptocurrency futures contract.  Each in-the-money option contract will deliver one Micro Cryptocurrency futures contract, which represents 1/10 of a bitcoin or ether.

Let’s assume the price of bitcoin, as tracked by the CME CF Bitcoin Reference Rate (BRR), is $40,000.  The notional value of one Micro Bitcoin futures contact is 4,000 U.S. dollars.  Assuming the premium for a micro bitcoin option is 100 index points.  The cost for this option would be ten dollars.

Looking at an Ether example, if the price of Ether, as tracked by the CME CF Ether Dollar Reference Rate (ETHUSD_RR) is three thousand. The notional value of one micro ether futures contact is three hundred U.S. dollars.  Assuming the premium for a micro ether option is 10 index points.  The cost for this option would be one dollar.

While Micro Bitcoin and Micro Ether options will see their value fluctuate based on the movement of their underlying futures, it’s important to note that there are several factors which affect an options premium: the price of the underlying futures, volatility, interest rates, and time to maturity.

Both Micro Bitcoin and Ether options will have strikes listed which reflect their underlying price, as well as the number of days until expiration of the contract.  The options will be European-style expiration, meaning in-the-money positions will be automatically exercised at expiration.  Option sellers cannot be assigned prior to expiration, nor will contrarian instructions be allowed. However, traders can always offset their position prior to expiration.

Options on Micro Bitcoin and Micro Ether futures will be available to trade on the CME Globex electronic platform, Sunday afternoon through Friday afternoon, nearly 24 hours per day, and will be cleared through CME Clearing.  Like other CME Group cryptocurrency products, margin offsets will be available.