Bitcoin’s (BTC) options markets are finally taking off at CME. This week Cointelegraph reported that the combined volume traded over the last ten days surpassed $140 million, as institutional investors delved in call options.
The buyer of a call option can acquire Bitcoin for a fixed price on a predetermined date. For that privilege, this investor pays an upfront premium for the call option seller.
CME Bitcoin Options Volumes – USD. Source: Skew
As halving uncertainties became less of a risk, institutional investors began mounting bullish positions. Despite being more complicated then futures trading, options markets allow investors to leverage their positions without liquidation risk.
Open interest is a more relevant metric
In simple terms, open interest is the total number of contracts held by market participants. Imagine a scenario where $70 million worth of call options are traded one week and reverted on the following one. Both the buyer and seller would be closing out their positions and risk. Despite $140 million being traded, market exposure (open interest) for such a scenario would be zero.
CME Bitcoin Options Open Interest – USD. Source: Skew
As per the above chart, volume registered over the last couple of weeks matched open interest. This indicates no positions have been closed so far. Most trades were short term call option contracts.
CME Bitcoin options contracts settlement. Source: CME
Keep in mind CME displays open interest in the number of contracts. As each CME contract entails 5 BTC, the minimum trade for a $10,000 strike amounts to a $50,000 notional. This sets CME markets apart from other markets where one can trade as little as 0.10 BTC.
1,800 call option contracts were traded at the May 29 expiry, which is equivalent to $90 million. The June 26 expiry currently has an open interest of 800 contracts, roughly $40 million notional. Strikes, or the contract expiry price, were scattered from $9,700 to $13,000.
What are buyers’ expectations?