At-a-Glance
Key Takeaways with Craig
US Equity Index prices were mostly higher today, but closed off of the day’s high levels, while Treasury yields traded higher. Specifically, CME’s 2-Year Yield Future was up by about 5 basis points and the 10-Year was up by about 7.5, as the curve steepened slightly between those two points. In the options markets, implied volatility in CME’s Equity Index options traded lower, but remains near the 3-month average, despite the index levels trading at or near all-time highs. CVOL in the Treasury options moved higher.
CME’s Bitcoin futures were down by about 1.5% today and, despite implied volatility in the options markets trading slightly lower, we thought the ongoing price volatility in the Bitcoin markets provided a good opportunity to showcase the latest in CME’s suite of Cryptocurrency futures. On September 30th, CME launched the new, innovative “Bitcoin Friday Futures” contracts or, “BFF”.
These Bitcoin futures are unique in that there is an expiration every Friday and, at 1/50 of a Bitcoin, have a smaller notional value than both the Bitcoin Future (BTC) and Micro Bitcoin Future (MBT). To put that in perspective, let’s compare those three contracts:
- CME’s Bitcoin Future (BTC) has a multiplier of 5, which means that one contract provides 5 times the current price of Bitcoin worth of exposure. So, at the current price, one BTC would give a trader exposure to bitcoin of about 5*67,160 = $335,800
- CME’s Micro Bitcoin Future (MBT) has a multiplier of .1, which means one MBT would give a trader exposure to about .10*67,160 = $6,716.
- However, if a trader were to trade one contract of the new BFF, with a multiplier of .02, they would gain approximately .02*66,900 = $1,338 worth of Bitcoin exposure. Also note, the price on the BFF is slightly different than that in the BTC and MBT. This is because, with an expiration tomorrow (remember, these have expirations every Friday), the futures price is closer to the cash or “spot” price.
As you can see, the smaller size of the BFF, relative to the other two Bitcoin futures, provides traders with the ability to precisely manage the amount of risk exposure they desire and, the shorter expiration cycle allows for managing risk around certain events and economic news releases. In just the first 13 trading days, Average Daily Volume is nearly 14k contracts, underscoring the popularity of this smaller sized product in the marketplace. The new BFF contracts are margined using the same system as CME’s other futures products, so, to hold one contract of BFF, currently worth about $1,338, a trader would be required to post just over $300 in a performance bond.
As we said earlier, implied volatility in CME’s Bitcoin options market has traded lower over the last couple of trading sessions, but we thought the skew was worth taking a closer look at. As you can see in the QuikStrike graph below that depicts the 25 Delta Risk Reversal, the 25 Delta Calls have been trading at a higher volatility level than the Puts over the last several trading days. Until recently and since July, the Puts have been trading higher (as denoted by the negative risk reversal number) or about the same as the Calls. Remember, the 25 Delta Risk Reversal is simply a measure of the implied vol in the 25 Delta Calls minus that of the 25 Delta Puts.
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