It appears Bakkt and the CME will both be launching Bitcoin Options contracts in the near future
The CME released details of their Bitcoin Options contracts today.
This is on the heels of Bakkt announcing their Bitcoin Options plans the other day:
Technically the CME announced they were launching Bitcoin Options contracts last month, but this was the first time they mentioned any of the specifics.
To be honest, these CME options are very interesting to me, well depending on your definition of "interesting".
If by "interesting" you mean, interesting in that they appear to be a derivative of a derivative, then yes they are very interesting!
A derivative of a derivative?
Looking into the specifics, it looks like the options contracts will be tied to the CME futures contracts.
Not the price of bitcoin, or the underlying asset, no they will be tied to the futures contracts.
Each contract would be based on one of CME’s bitcoin futures contracts, which in turn consists of five bitcoin, well the price of 5 bitcoin as they are all cash settled.
No matter how much they say they consist of 5 bitcoin, I will never agree that they actually do since they are cash settled.
So, basically we have a derivative of bitcoin now being packaged into another derivative. A derivative of a derivative!
What could go wrong?
It's like the financial crisis all over again where complicated derivatives pop up and are used for new ways to gamble on assets that aren't even tied to them.
Hopefully as Bakkt continues to gain traction, more and more investors switch over to that platform.
They actually back their futures contracts with physical bitcoin.
I am assuming they will do the same with their options contracts, though I haven't verified if that will be the case or not yet.
Both products are scheduled to launch within the first half of 2020, with the CME ones expected to launch first, pending regulatory approval.
More about the CME options can be seen here:
Stay informed my friends.