Managing Micro Bitcoin futures expiration

Every futures contract has an expiration date, marking the last day you can trade that contract. It’s important for all traders to understand the different ways to manage a contract expiration. 

Micro Bitcoin futures contracts expire the last Friday of the month. Prior to the contract expiration, a trader has three options:

• Offset the position
• Hold to expiration
• Roll

Offset the position

To offset a position, a trader must make an opposite and equal transaction of their current position. This allows you to monitor the current market level and assess the profit or loss of offsetting your position at the then-prevailing market prices – without taking the futures contract to final settlement.

For example, a trader who is short two June Micro Bitcoin futures contracts will need to buy two June Micro Bitcoin futures contracts to offset their position. The difference in price between the initial position and offset position will represent the profit or loss on the trade.

Hold to expiration

Micro Bitcoin futures settle in cash according to the CME CF Bitcoin Reference Rate (BRR) on the last day of trading. 

For example, if a trader bought one June Micro Bitcoin futures contract at $55,000 and the Micro Bitcoin futures contract settled at the CME CF Bitcoin Reference Rate of $57,000 at expiration, the trader’s account would be credited $200.  

Although the price of bitcoin increased by $2,000, since the Micro Bitcoin futures contract is 1/10 of a bitcoin, the trader realizes a $200 gain. 

Roll

Finally, traders may wish to extend their position in Micro Bitcoin futures and maintain continuous exposure to the contract. This is referred to as rolling the futures or rolling forward and allows a trader to extend a futures contract from one expiration to the next or one that is further out on the curve.  

This can be transacted using a calendar spread. A calendar spread allows a trader to trade out of an expiring contract and into a deferred contract. By executing a calendar spread, a trader’s Micro Bitcoin futures position can be extended by one month or more, depending on which deferred contract they “roll” into.

A roll example

Let’s assume, a trader is long five June Micro Bitcoin futures contracts and wants to extend their long Micro Bitcoin futures exposure into July. 

They enter a single order, known as a calendar spread, to roll the contracts forward.

The trader would simultaneously sell the June futures and buy July futures ‒ resulting in a net zero position in June and a long position of five July Micro Bitcoin futures contracts.

The trader has seamlessly moved their long position from June to July.

While the trader chose to roll into July futures, they could also have rolled into any listed Micro Bitcoin futures contracts if their investment horizon was longer. 

The price of that calendar spread may be different depending on the time frame and cost to carry.

We’ve discussed three ways a trader can manage their Micro Bitcoin futures position and exposure heading into futures expiration. However, you will need to decide what works best for your trading strategy. Understanding how to manage expiration is an important aspect of trading Micro Bitcoin futures and managing your trading account.