Option traders must decide the time period and price level they want to participate in the market and plan their trading strategies accordingly. These are referred to as the option’s expiration date and strike price.
When trading options on bitcoin futures at CME Group, traders have the flexibility to choose between different contract expirations and strike prices.
Understanding contract expirations
First, let’s look at the contract expirations. CME Group will list six consecutive months of options on Bitcoin futures. Also, there will be two December options contracts. However, if the current year’s December contract is one of the front six consecutive listings – there will be only one additional December listing.
Each option will expire into its underlying futures contract, and that futures contract instantaneously settles into cash.
For example, assume it’s January. The six consecutive monthly futures listed are: January, February, March, April, May, and June. This year’s December contract and next year’s December contract will also be listed.
During the January through May expirations, as these contracts expire, a new contract will be listed on the back end of the sixth month series. When June expires, there will be no need to add a December expiration because it already exists.
During the July through November expirations, a contract is added. Following the December expiration, June is added along with the following December expiration.
The details of the listing cycle can be found on the contract specifications page.
Understanding strike prices
Now let’s discuss the strike prices of options on bitcoin futures.
An option’s strike is the price at which a call owner can purchase, or a put owner can sell, the underlying futures contract. Multiple strike prices will exist with the same expiration date. This set of strike prices is referred to as the strike range.
The strike range extends above and below the current futures price so that risk can be managed whether the futures price increases or decreases.
Dependent upon the Bitcoin futures price or expiry, strike intervals will be available at 50, 100, 500, 1,000, 5000, and 10,000. The strike increment for very far, out-of-the money strikes will be larger than for the ‘at the-money’ strikes. Near-the-money strikes will be more granular to allow for greater precision when hedging. This is will applicable across all monthly listings.
Additionally, CME will be listing more granular strike intervals as option expiration approaches – again allowing more precision when hedging. Additional strikes may be added based on the movement of the Bitcoin futures price. CME Group will manage the listing daily to ensure that appropriate instruments are available.
CME Group options on Bitcoin futures provide traders a variety of strikes and expirations. This enables multiple trading strategy “options” to manage bitcoin price risk or express a view on the price of bitcoin.
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