Cryptocurrency
Options on bitcoin futures just launched. Here’s what you need to know
As reported by CNBC, “They’re finally here. Exchange-traded bitcoin options launched Monday on the Chicago Mercantile Exchange. “Traders of all stripes have been desperate for exchange-traded options on bitcoin because options can be used to define risk while expressing nearly any market thesis and it is that ability to limit losses that is so important in bitcoin, […]
As reported by CNBC, “They’re finally here. Exchange-traded bitcoin options launched Monday on the Chicago Mercantile Exchange.
“Traders of all stripes have been desperate for exchange-traded options on bitcoin because options can be used to define risk while expressing nearly any market thesis and it is that ability to limit losses that is so important in bitcoin, which saw a 1,900% rally in 2017 followed by an 82% break before bottoming late in 2018.
“Traditional options allow the buyer of the option to purchase the underlying asset in the case of a call option or sell the underlying in the case of a put option. Options on futures are just a bit different in that the owner of a call option has the right at option expiration to take a long position in the bitcoin futures contract traded at the CME, while the owner of a put option has the right to take a short position in those bitcoin futures.
“Regardless of the underlying instrument, the ability to define risk comes at a cost. Options on bitcoin futures are incredibly expensive as you would expect from anything with this sort of volatility. Traders usually refer to the cost of an option in terms of ‘implied volatility,’ or the amount of volatility implied by that current price of the option.
“Options on bitcoin futures are implying an extreme amount of volatility. Just after midday on Monday, the $8,000-strike put options expiring in April were trading at 72% implied volatility, suggesting that traders believe bitcoin is likely to be between $6,965 and $9,940 when those April options expire. That’s a range of 37% with bitcoin futures at $8,130. In comparison, the at-the-money April options for the S&P 500 are trading below 12% implied volatility…”