In January 2020, the Chicago Mercantile Exchange [CME] launched Bitcoin Options to little fanfare. Despite their Bitcoin Futures finding much success in the previous year, trading, on average, 6,000 contracts a day, the added risk factor of the options contracts did not excite the market.
Within the first month, the highest single-day volume on the exchange was a dismal $5.4 million. To put that in perspective, CME’s Bitcoin Futures lowest trading day in January alone saw $143 million in volume. Suffice it to say, the exchange’s institutional investors didn’t take too well to Bitcoin Options.
This trend of Futures in Options continued till the end of April. As the open interest on CME’s Futures grew to $300 million, the same metric on the options’ side was less than $40 million, but then it all changed. From May 5, a week prior to Bitcoin’s block halving, a new ATH was seen at $9.4 million worth of Bitcoin Options traded. Since then, the ATH has been broken 6 times, with the highest single-day volume reaching $66 million on May 28th.
Despite a few single-digit trading days in between, in the past week [June 1 to June 5] the average daily volume was $34 million.
CME BTC Options OI | Source: skew
However, the increase in the exchange’s open interest, unlike the volume has been steadily consistent, and far greater. Since May 31, the amount of open and outstanding positions on the exchange has increased from $163 million to over $301 million, an 84 percent increase in the past 7 days, and a new ATH.
Given this difference between volume and open interest, CME’s Bitcoin Options turnover is highly skewed. With a volume to open interest ratio of 0.17, there is a high amount of hedging taking place in the market. To put it simply, traders on the CME are not trading contracts intra-day, but rather opening them up with later expires, which explains the growing open interest.
This disparity in CME’s internal coffers is represented in comparison with other exchanges. As the Bitcoin Options market, as a whole, has seen growth in the past few weeks, volumes and open interest have risen, more so for the CME than the rest.
As things stand, CME’s open interest as a share of total open interest on Bitcoin Options contracts is 22 percent, a massive rise over the past two months when it was less than 5 percent. However, this increase has not manifested in volumes, as CME’s share in total Bitcoin Options volume is less than 1 percent.
Going by its increasing open interest, subdued volume and incredibly low turnover, investors on CME’s are using the options contracts to hedge the price of Bitcoin in the short term.
BTC Options volumes share by exchange | Source: skew
