The Chicago Mercantile Exchange (CME), which already hosts the most popular and longest-running Bitcoin futures exchange in the United States, has announced that they will be launching options on Bitcoin futures in Q1 2020.
The difference between a futures and options market is that in a futures market the investor is contractually obligated to make a trade on a specified date in the future, whereas in an options market, the investor has the right to make a trade but not an obligation.
An investor pays a premium upfront to buy the options contract, and the risk is this premium will be lost if the market moves in an unexpected direction. This is actually less risky than the futures market since an investor technically has infinite risk in a futures market.
Notably, the Bitcoin options on CME will be the first regulated and compliant Bitcoin options in the United States and will give a new way for investors to mitigate risk and develop trading strategies in the Bitcoin market.
As Tim McCourt, the global head of equity index and alternative investment products at CME Group says
“Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk. These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment”.
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