Options on Bitcoin Friday (BFF) futures offer a new and efficient way for traders to gain exposure to the bitcoin market. These contracts are designed to be accessible and flexible, with contracts expiring every day from Monday to Friday, aligning with the fast-paced nature of the cryptocurrency market.

Each BFF contract represents 1/50 of a bitcoin, making it easier for retail traders to manage their risk without the need to purchase a whole bitcoin. This fractional exposure allows for greater flexibility and precision in managing risk, catering to a wide range of traders and investors.

Options on BFF are financially settled, while other CME Group Cryptocurrency options are physically delivered into a futures contract. This financial settlement is based on the CME CF Bitcoin Reference Rate New York Variant (BRRNY), a widely recognized benchmark. The BRRNY is calculated using trade activity from major exchanges, ensuring transparency and reliability.

With contracts expiring every day from Monday to Friday, traders have greater control over their trading strategies. This flexibility allows traders to respond promptly to market developments and adjust their positions accordingly.

Options on Bitcoin Friday futures are financially settled by reference to a fixing price, which, on the last business day of the week, shall correspond to the final settlement price for BFF. Options expiring prior to the last business day of the week shall correspond to a volume-weighted average price of transactions in BFF during the last sixty minutes of trading on the expiration date of the associated options contract (3:00:00 p.m. – 3:59:59 p.m. ET). This ensures transparency and reliability, providing traders with confidence in the settlement value of their contracts.

Assume the BFF futures are trading at a price of $100,000. ‌At a multiplier of 1/50 of an option, the notional value of this BFF futures contract is $2,000.  

Likewise, assume that the options premium of a call option on BFF futures is $1,000 on the CME Globex platform. ‌The actual notional dollar value of this option, given the contract multiplier, is $20.

Continuing with this example, let’s assume that today is Monday. ‌A trader buys a $100K strike call option on BFF futures, expiring at 4:00 p.m. on Monday at a price of $1,000 on screen for a notional value of $20.  

At expiration that afternoon, assume that the fixing price of the futures is $102,000. ‌The option is in the money. ‌The trader nets a cash profit equal to the difference of the fixing price and the strike price times the contract multiplier, for in-the-money options.

In this case, the cash delivery is equal to the $2,000 difference of the fixing price and the strike price, times 0.02, or $40.   

How about a Friday-expiring option, a situation when the futures and options expire simultaneously?  

Let’s assume, in this scenario, that today is Thursday, and a trader instead buys the same $100K strike call option at a price of $1,000 for Friday’s expiration.

This option will undergo a daily mark-to-market on Thursday night, and the final settlement will occur on Friday at 4:00 p.m. ET

In this instance, option moneyness is not determined by a fixing price of futures activity, as the futures contract itself is expiring. Instead, the final settlement price of the BFF futures contract determines moneyness, equal to the Bitcoin Reference Rate NY calculation (or BRRNY), based on transactions in the underlying cryptocurrency coin.  

Completing this example, assume that the BRRNY price on Friday at 4:00 p.m. E.T. is $101,000. ‌The cash delivery is once again equal to the difference of the strike price and the BRRNY price, or $1,000 times 0.02, equal to a $20 profit.

Options on Bitcoin Friday futures (BFF) offer several benefits for traders. With their shorter-dated nature, smaller contract size and cash-settled structure, options on BFF provide greater accessibility, flexibility and capital efficiency. 

For more information on Bitcoin Friday futures and options, visit cmegroup.com/bff.