The Chicago Mercantile Exchange announced the launch a new ETH-based options products ahead of Merge.
Global Head of Equity and FX Products, Tim McCourt says that interest in ether derivatives has exploded. One of only two U.S.-licensed exchanges, the exchange is already experiencing a 43% increase daily trading volume, compared to last.
Cumberland, a digital asset division of DRW based in Chicago, provides liquidity. Genesis, a company that specializes in digital currency transactions, loans, and other transactions, will provide ether options contracts for their clients.
McCourt stated that the CME Group launched two types derivative products in August: euro-denominated Bitcoin and ether futures. These were designed to help institutional investors reduce the risk of the volatility associated with cryptocurrencies.
You want to profit from the ETH price rise
The launch of ether options occurs as ether prices rise 10.3% since the Ethereum merge on Sep. 6, 2022. This is in addition to the Bellatrix upgrade, and the last mainnet shadow fork being live on Sept. 9, 2022. McCourt says the launch is “well-timed”.
The futures products were also released at a time when bitcoin prices were just above $19,000 to $20,000 The price of ether was slightly higher than $1,500. Both crypto assets were down more than 60% since Nov. 2021’s highs.
There are two types options contracts. An option contract that allows you to open a call option to purchase an underlying asset at the strike price, but within a certain time period. The buyer can purchase the asset at the strike value and then sell it to make a profit if the asset’s price rises. A buyer who has a put option to purchase an asset at a certain price, such as $100, can sell it if the price drops to $80 and pocket the profit.
If the asset price falls after the expiration of the call option, the investor will lose their initial investment. If the asset price increases above the initial investment before the contract expires, the investor will lose their initial investment. This is also known as a premium.
CME’s new product has one ether futures contracts, each 50-ETH in size. To determine the price of ether, the contract uses the CME CF ETher-Dollar Refer Rate.
High leverage derivatives products can increase liquidation risk by increasing the likelihood of losing your money.
The most common combination of derivative products and high levels of borrowing is to increase returns to investors. They have historically been more popular with professional than retail developers. Options and futures allow investors to only put up a fraction of the deal’s value. Even the leading binary options brokers are now starting offering options contract on Ethereum.
Coinbase has recently launched the nano Bitcoin-Futures product, which allows investors with smaller pockets to invest without the risk of liquidation associated with high-leverage trading.
The retail broker function of crypto exchanges allows them to open the derivatives market up to retail investors by making strategic acquisitions. Exchanges such as Coinbase or FTX that have a futures commission merchant licence can be acquired by other derivatives exchanges. This will allow them to build retail outlets in lucrative markets.
CME Group was responsible for 4% crypto derivatives trading globally in Jan. 2022.
The bullishness of previous launches has not been evident
CME Group has always seen peaks in the prices of derivative products when they launch them. The marketplace launched its first bitcoin product on December 17, 2017. Bitcoin hit an all time high of $19 423.58, while ETH rose to $728.70. This was part of an upward trend that would see it reach an all-time record high of $1,448.18 Saturday, January 13, 2017. The launch of ProShares’ bitcoin Exchange-Traded fund on Oct. 19, 2021 saw ETH rise from $3,752.62 to an all-time high $4,878.26 by November 10. Bitcoin continued to rise on the launch day, reaching an all-time high at $69,000 on November 10, 2021.