Bitcoin Futures on the CBOE Futures Exchange ($XBT)

By Lawrence G. McMillan

The CBOE will begin trading Bitcoin Futures with Sunday night’s trading (December 10th). These are the basic facts about the contract, as taken from the website (the CME futures begin trading on Dec 18th).

• Base Futures Symbol: XBT
• Months of trading: initially, three weekly futures. Eventually: up to four weekly futures, plus the nearest three months, plus three months on the quarterly March expiration cycle. 
• Contract size: 1 bitcoin, quoted in dollar terms.
• Minimum tick size: 10 points, or $10.
• Underlying price of Bitcoin will be determined by the Gemini Exchange (they are one of 20 or companies that trade bitcoins).
• Final Settlement Date: 2 business days prior to the third Friday of the expiration month.
• Final Settlement Value: the 4:00pm (Eastern time) value, as determined by the Gemini Exchange
• Trading Limits/Halts:
  10% intraday move = 2 minute trading halt.
  20% intraday move = 5 minute trading halt.
  There is no daily trading limit, which very much surprises me.

Although it’s not in the document, I understand that the CBOE has posted a “minimum exchange margin” figure of 35%. In reality, the margin for a futures contract will be determined by your broker. For example, Interactive Brokers (IBKR), which is conservative is going to put margin at 50% of the value of the contract, and will allow long positions only. Rumors are that other futures brokers want up to 80% margin, but will allow shorting. Some may even require 100% margin. Some others are not allowing trading in the contract at all – at least not at the beginning.

Ouch! Usually, a futures contract has a minimum exchange margin somewhere in the 10% to 20% neighborhood, depending on the volatility of the underlying. By our calculations, the 20-day historical (realized) volatility of GBTC (a bitcoin trust ETF) is 130%.

So there you have it. Not very favorable terms, but this is a wild, wild contract. One wonders if these futures will be successful, for there are so many restrictions on this trading. But it does give the well-heeled person a venue for attempting to trade, though contract sizes are likely to be too large for most small speculators. Also, since the underlying is not a regulated entity, there could be some problems with that as well.

It will be very interesting to see if these contracts survive. It is certainly within the realm of possibility that small investors can’t participate, and current bitcoin traders won’t participate. Who would that leave? ■

This article was featured in the 12/8/2017 edition of The Option Strategist Newsletter.