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).
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.