Options Industry

This Week in Futures Options 77: The Great Bitcoin Bonanza


The listeners have chosen, and they have chosen Bitcoin.

Download This Week in Futures Options 77: The Great Bitcoin Bonanza

Bitcoin Madness Strikes the Audience

#TWIFO Question of the week: Which options product do you want us to discuss live this Friday 1:30pm CT?

  • Natural Gas
  • Russell 2000
  • WTI Crude Oil
  • Or...Bitcoin

What Is Bitcoin Reference Rate?

  • The CME CF Bitcoin Reference Rate (“BRR”) is a daily reference rate Of the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. It is representative of the bitcoin trading activity on Constituent Exchanges and is geared towards resilience and replicability.
  • METHODOLOGY: Aggregation of trade executions occurring on Constituent Exchanges between 3:00 p.m. and 4:00 p.m. London time
  • All Relevant Transactions are added to a joint list, recording the trade price and size for each transaction. The list is partitioned into 12 equally-sized time intervals of 5 minutes each. For each partition separately, the volume weighted median trade price is calculated from the trade prices and sizes of all Relevant Transactions, i.e. across all Constituent Exchanges. A volume weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation. The BRR is then given by the equally-weighted average of the volume-weighted medians of all partitions
  • DISSEMINATION: Once per day, every day of the year including weekends and holidays, between 4:00 p.m. and 4:30p.m. London time

Bitcoin Futures Contract Specs

  • BRR: Currently $6811
  • SIZE: 5 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR)
  • Minimum Price Fluctuation: Outright: $5.00 per bitcoin = $25.00 per contract. Calendar Spread and Basis Trade at Index Close (BTIC): $1.00 per bitcoin = $5.00 per contract
  • Position Limits: Spot Position Limits are set at 1,000 contracts. A position accountability level of 5,000 contracts will be applied to positions in single months outside the spot month and in all months combined. The reportable level will be 25 contracts.
  • Price Limits: Special price fluctuation limits equal to 7% above and below prior settlement price and 13% above and below prior settlement price and a price limit of 20% above or below the previous settlement price. Trading will not be permitted outside the 20% above and below prior settlement price.

Could Bitcoin Futures Rein in the Big Price Swings?

  • After CME announced that they would soon be offering Bitcoin futures, the price of the digital currency took a big upward swing. However, CME is of the opinion that futures could actually put a stop to Bitcoin’s synonymous volatility.
  • CME will be putting in place special price fluctuation limits that will help protect investors from the notorious price swings, but these same protections could also help ease the price swings and make the digital currency settle down somewhat.
  • After CME announced that they would soon be offering Bitcoin futures, the price of the digital currency took a big upward swing. However, CME is of the opinion that futures could actually put a stop to Bitcoin’s synonymous volatility.
  • CME will be putting in place special price fluctuation limits that will help protect investors from the notorious price swings, but these same protections could also help ease the price swings and make the digital currency settle down somewhat.
  • Many believe that it is these violent swings that are stopping mass adoption of the digital currency, especially as a currency. If there was a more steady rate, then Bitcoin would be able to stretch more towards being a currency while still holding onto its power as a store of value.

Other topics this week include:

  • Crude
  • Gold

Futures Options Feedback: Listeners have their say

  • Question from Vamp111: Ciao, anyone know when exactly CME Group will launch Bitcoin Futures??
  • Comment from tmal: IMO BTC initially has monster call skew. Bring BTC to the masses.
  • Question from Folfox:  Do you prefer iron condor vs. iron butterfly? (I know 1 strategy wont work every time, but what scenario is preferred)
  • Comment from JNL09: Not sure about the bitcoin implied volatility stated on the show last week. I was sure its at least 200.

About Mark S. Longo


Mark S. Longo is the founder of The Options Insider Inc. - a firm dedicated to providing free options information, education, news and analysis for options users. Whether it's on TheOptionsInsider.com, a leading online options destination; through Options Insider Radio, the world's only radio network for options users; or through a growing number of newsletters and live events, Mr. Longo continues to provide new ways to spread the word about options.Mr. Longo's analysis of the options market has appeared in a wide variety of domestic and international publications, including The Wall Street Journal, Financial Times, Reuters, Futures Magazine, and more. As one of the few industry commentators with practical options experience, he has developed a substantial following among industry veterans and newcomers looking for insight into this complex market. Mr. Longo began his career as an options trader on the floor of the Chicago Board Options Exchange.

Author's web site: http://www.theoptionsinsider.com


View Mark S. Longo's post archive >

Advertisement Continue reading

The Options News RundownAudio

Your source for the most important news and information from the world of options.

The Options Insider Radio NetworkAudio

All of our radio programs in one convenient place.

Options Insider RadioAudio

The original options podcast. Features interviews with leading options figures.

The Option BlockAudio

This high-octane program features education, analysis, strategies and unusual activity.

Volatility ViewsAudio

The premier radio program for volatility traders.

The Long And Short Of Futures OptionsAudio

Your source for futures options information.

The Advisor's OptionAudio

Arming advisors with the info necessary to manage risk.

Options Boot CampAudio

Get into peak options trading shape.

Options Insider Special EventsAudio

Compelling panel & special event recordings from the options world.

OIC's Wide World of OptionsAudio

A dynamic mix of current events, investor resources, & strategy insights.

Trading Tech TalkAudio

We break down all the amazing technology that takes your trades from the click of a mouse to the clearinghouse.

Options Playbook RadioAudio

Break down cutting-edge options strategies and learn how to incorporate them into your portfolio

Options OdditiesAudio

We track all the unusual options trading activity on Options Oddities.

This Week in Futures OptionsAudio

The program designed to help active futures options traders stay on top of this ever-changing marketplace. 

The Business ShowAudio

If you like business, if you like humor, if you like stock symbols, this is the podcast for you.
x

The Options Insider Radio Network

The Options News Rundown

Your source for the most important news and information from the world of options.

The Options News Rundown

The Options Insider Radio Network

All of our radio programs in one convenient place.

The Options Insider Radio Network

Options Insider Radio

The original options podcast. Features interviews with leading options figures.

Options Insider Radio

The Option Block

This high-octane program features education, analysis, strategies and unusual activity.

The Option Block

Volatility Views

The premier radio program for volatility traders.

Volatility Views

The Long And Short Of Futures Options

Your source for futures options information.

The Long And Short Of Futures Options

The Advisor's Option

Arming advisors with the info necessary to manage risk.

The Advisor's Option

Options Boot Camp

Get into peak options trading shape.

Options Boot Camp

Options Insider Special Events

Compelling panel & special event recordings from the options world.

Options Insider Special Events

OIC's Wide World of Options

A dynamic mix of current events, investor resources, & strategy insights.

OIC's Wide World of Options

Trading Tech Talk

We break down all the amazing technology that takes your trades from the click of a mouse to the clearinghouse.

Trading Tech Talk

Options Playbook Radio

Break down cutting-edge options strategies and learn how to incorporate them into your portfolio

Options Playbook Radio

Options Oddities

We track all the unusual options trading activity on Options Oddities.

Options Oddities

This Week in Futures Options

The program designed to help active futures options traders stay on top of this ever-changing marketplace. 

This Week in Futures Options

The Business Show

If you like business, if you like humor, if you like stock symbols, this is the podcast for you.

The Business Show