CME Head Tim McCourt Explains How Bitcoin Options Work

Back in September 2019, CME announced plans to launch Bitcoin options on its Bitcoin futures trading products in early 2020.

In a recent interview, CME Group Managing Director and Global Head of Equity Index Alternative Investment Products Tim McCourt explained CME's upcoming Bitcoin options product, as well as options trading in general.

"It's very similar to the way other options in the marketplace work. The difference here is the underlying, or the deliverable, of the options contract, is a CME Group Bitcoin future."

Similar to its Bitcoin futures, CME's Bitcoin options will have expiration dates.

If a trader holds an option through expiration, that trader will receive settlement in the form of a CME Bitcoin futures position, which will then settle into cash if the trader holds that futures position through expiration, McCourt explained.

According to CME's recently posted preliminary Bitcoin options specifications, CME Bitcoin options expire at the same time as the underlying monthly BTC futures.

"Option exercise results in a position in the underlying cash-settled futures contract. In-the-money options are automatically exercised into expiring cash-settled futures, which settle to the CME CF Bitcoin Reference Rate at 4:00 p.m. London time on the last Friday of the contract month."

Regarding physically-settled Bitcoin options, buying a Bitcoin call option at $8,000 gives the trader the ability to buy Bitcoin in the future for $8,000 if he or she holds that position through expiration.

McCourt described options products in general as "a way to gain exposure, but without having to necessarily purchase or sell the underlying asset." He also noted risk management and position management as a possible rationale for participating in options products.

According to CME's recently released preliminary Bitcoin options specs, each options contract is the same size as each Bitcoin futures contract, equating to 5 BTC per contract.