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What Comes After Bitcoin Futures?

CBOE and CME are both listing Bitcoin futures products in the upcoming couple of weeks (see below for a few differences or go to our blog post for a more robust contract comparison and how to view bitcoin in QuikStrike). Established exchanges are better positioned to handle large volumes of trading like those that have presumable hobbled the major cryptocurrency exchanges today.

Financial market exchanges have the unenviable job of saving traders from themselves (by not allowing the financial ecosystem to take on undue risk that could cause a systemic market meltdown – ahem – Lehman/Bear/et al.) while trying to get enough market participants to trade their product(s) so that they have liquidity. Not too hot, and not too cold, but hot enough to earn profits from fees. Historically, only one exchange at a time has been able to effectively list any given product so we expect a dominant contract/exchange to emerge in the next year or so.

After the battle for bitcoin futures plays out, though, one can’t help but wonder what comes next? Here are some possibilities that we consider likely –

Medium Term:
– Options on futures (stay tuned for our bitcoin options analysis)
– Options on calendar spreads

Longer Term:
– E-mini contracts for CME (the original listing will be for 5 bitcoins)
– Weekly options
– Additional contracts in the term structure for the dominant exchange
– ETFs on the futures for retail customers

CBOE vs. CME

Perhaps as a result of the distributed nature of cryptocurrencies, until now, bitcoins have traded on a multitude of cryptocurrency platforms of varying repute and quality forcing the more traditional exchanges to get creative with determining the “true” exchange rate of bitcoin.

The most important difference between the exchanges contracts will be how the price of bitcoin is determined. CBOE’s futures will be based on Gemini’s auction price for BTC/USD. Auctions take place daily at 3pm CT and endeavor to “foster moments of elevated liquidity.” Gemini was founded by the Winklevoss Twins – famous for suing Mark Zuckerberg over the creation of Facebook – who have been some of the most public, early advocates of bitcoin.

CME is taking a more democratic route using price and volume data from “a geographically diverse set of bitcoin trading venues” to “reflect global bitcoin trading activity in a representative and unbiased manner.” For bitcoin historians, their methodology is similar to the first CFTC approved index created by TeraExchange in 2014. The current constituent exchanges for the CME are the following:

What are your thoughts on cryptocurrencies? Just another bubble or the wave of the future? Drop us a line.

Cross Asset Class Volatility Update

In the last few weeks volatility has returned to financial headlines with a vengeance leaving traders checking under their beds for asset bubbles and causing “panic” when VIX traded with a 17-handle for the first time since November 2016. So what’s really playing out in markets?

* note that the volatilities shown are calculated using industry standards based on the type of asset; for example, absolute levels cannot be compared between rates and metals.

Rates

In rates space historical volatility (orange) has picked up but implieds (blue) are lackadaisical. FV/5-yr, TY/10-yr, and US/bond, 30-day constant maturity series are shown respectively below:

 

Here’s a longer dated TY history:

Metals

Gold vol has actually found a bid (with silver and palladium following suit):

While platinum, thus far, is flat:

Energy

Natural Gas implied volatility is the lowest it’s been since 2014:

Although oil is off the lows of the year:

Ags

Vol has come back down in grains after an exciting month although wheat could be picking up again:

Equities

And last but not least, E-mini S&P500 vol has caught a bid:

For a little perspective of where we are currently, here’s a 5-year history of a few constant maturity series:

Like all things, low vol environments eventually come to an end, but low vol by itself doesn’t “trigger”  eruptions. Claiming that vol can uptick ahead of an event isn’t exactly going out on a limb. But I’m sure they’ll tell you they told you so next week.

New Equity Index Contracts on QuikStrike

The FTSE Russell 2000® has returned to the CME giving futures and options traders seamless access to mid-cap equities and margin offset benefits. Weekly volume has nearly tripled since the contracts were first listed on July 10th, and all positions will need to be transferred from the ICE to the CME once September expires (details are available on the CME website).

As part of the same agreement the CME has also listed contracts on the Russell 1000 (including the Growth and Value indexes), FTSE Emerging Markets, FTSE Developed Europe, and FTSE China 50.

Contract Specifications

Newly listed contracts include:

  • E-mini Russell 2000 Index
    • Futures (symbol: RTY)
    • Options
      • quarterlies (symbol: RTO)
      • weeklies (symbol: R1E, R2E, etc.)
      • EOM (symbol: RTM)
  • E-mini Russell 2000 Growth Index futures (symbol: R2G)
  • E-mini Russell 2000 Value Index futures (symbol: R2V)

The futures expirations will coincide with standard US equity index futures on the
third Fridays of March, June, September, and December.

Open Interest in Options on the Rise

If you’re looking for the best liquidity in options, open interest is picking up in the Sep quarterly and August weekly expirations as shown in the Open Interest & Settlements (under Market Reports in the Professional editions):