The acceptance and adoption of cryptocurrencies within the global financial ecosystem is on the rise, with more trading participants eager to gain access to digital assets. Cryptocurrencies are becoming more accessible to investors through ETFs, and the next level of financial engineering for this asset class is underway, with the recent launch of multiple derivative instruments.
Cboe Global Markets, Inc. CBOE, the world’s leading derivatives and securities exchange network, has recently launched a series of cryptocurrency index options and futures, enhancing the capacity of both individual and institutional investors to access, invest in and manage their cryptocurrency exposure more comprehensively. Currently, Cboe's product suite includes the Cboe FTSE Bitcoin Index Futures (XBTF), Cboe Bitcoin U.S. ETF Index Options (CBTX), Cboe Mini Bitcoin U.S. ETF Index Options (MBTX), Cboe GBTC ATM BuyWrite Index, Cboe GBTC 20% OTM BuyWrite Index and Financially Settled Bitcoin (FBT) and Ethereum (FET) Futures.
A Look At Each Offering
In bringing these products to market, Cboe leverages its expertise in derivatives as the inventor of listed options trading – while being intentional about how these solutions can provide value for investors. Thus, each offering is designed to be purposeful and effective in helping investors manage their cryptocurrency exposure.
Cboe FTSE Bitcoin Index Futures can efficiently provide investors with exposure to Bitcoin, as the futures contracts are based on the FTSE Bitcoin Reduced Value Index, which represents one-tenth of the value of the FTSE Bitcoin Index. The cash-settled nature of this investment offering is a primary benefit, as it enhances capital efficiency, eliminating the complexity of physical Bitcoin delivery. Cboe FTSE Bitcoin Index Futures can be used to potentially mitigate volatility and adverse price movements associated with various Bitcoin exposures, including Bitcoin, Bitcoin ETFs, Bitcoin ETF options and other Bitcoin futures.
Both the Cboe Bitcoin U.S. ETF Index Options and Cboe Mini Bitcoin U.S. ETF Index Options are the first Securities and Exchange Commission (SEC) cash-settled index options tied to spot Bitcoin. Both indices track the same underlying basket of spot Bitcoin ETFs, with the primary differentiator being that Cboe Mini Bitcoin U.S. ETF Index Options have 1/10th the exposure of the Bitcoin ETF.
Cboe's most recent offerings, the Cboe GBTC ATM BuyWrite Index and the Cboe GBTC 20% OTM BuyWrite Index, are the first option-based indices in the market to track the performance of systematic covered call strategies on a spot bitcoin ETF, specifically the Grayscale Bitcoin Trust ETF GBTC. The former is designed to track the performance of a monthly covered call strategy with a synthetic long exposure to GBTC and a short at-the-money (ATM) call option on GBTC. The latter has a similar design, but with a short 20% out-of-the-money (OTM) call option on GBTC.
While both strategies are income-oriented, their approaches differ in nuance. The Cboe GBTC ATM BuyWrite Index focuses on generating income by systematically selling call options near spot prices. The premiums earned can help mitigate losses during market downturns. This strategy generally performs better when the market remains stable or experiences a rapid decline but tends to lag during a swift market recovery. Conversely, the Cboe GBTC 20% OTM BuyWrite Index seeks to balance income and growth. It achieves this by selling call options at higher strike prices, allowing investors to capitalize on potential increases in the underlying asset.
Cboe's Financially Settled Bitcoin (FBT) and Ethereum (FET) Futures are CFTC-regulated, cash-settled futures contracts trading on Cboe Futures Exchange (CFE). Recently, Cboe successfully migrated FBT and FET to CFE, unifying all of Cboe's products on Cboe Titaniumsm (Cboe Tism), Cboe's leading edge technology.
Cboe's financially-settled Bitcoin and Ethereum futures are derivatives contracts that enable traders and investors to speculate, hedge and manage risks associated with the respective cryptocurrencies without owning the digital assets. These contracts are financially-settled and based on Cboe Kaiko Reference Rates.
Utilizing Cboe's Historic Expertise
With the gradual expansion of the digital asset landscape, investors are increasingly trying to gain exposure to the asset class. Through these Cboe investment offerings, interested investors can efficiently gain the desired exposure to their choice of digital asset, implementing strategies such as volatility arbitrage or hedging portfolio risk.
The launch of these recent investment offerings reflects the innovation and experiential knowledge present at Cboe. For individuals interested in bolstering their knowledge on derivatives products, The Options Institute provides both beginners to options trading and professional traders with a forum to familiarize themselves with foundational knowledge on options or learn about new developments taking place within the investment derivatives landscape. The Options Institute has been in existence for four decades, providing comprehensive courses and tools, equipping investors with the knowledge to navigate the complexities of options trading effectively.
It is important to remember that responsible options trading is based on defining an investment objective and using analysis and informed decision-making to determine the most appropriate trading strategy. Understanding how options work and the associated risks, just like any other financial asset, is paramount.
Featured image from Shutterstock.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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