CME Group is sharing details on bitcoin options that could signal an 'imminent' product launch

CME Group, the Chicago-based exchange giant, is gearing up to add another product to its family of bitcoin derivatives, according to sources familiar with the situation. 

The firm has shared with market-making firms the specifications of a new bitcoin options contract, per documents reviewed by The Block. CME is known for being one of the first regulated exchanges in the U.S. to launch a market for bitcoin futures, which went live at the end of 2017. 

CME wouldn't be the first platform to offer bitcoin-tied options, which would give traders the right to buy the asset at a specific price in the future. Deribit, a European-based firm, commands over 90% of the market for bitcoin options trading. It recently rolled out a block trading functionality with New York-based Paradigm. Elsewhere, Chicago-based LedgerX offers bitcoin options trading. CME CEO Terry Duffy told CNBC that the firm was exploring options tied to bitcoin in August. 

"We’re evaluating launching options on bitcoin futures, but can’t comment on specifics," a spokeswoman told The Block in a statement. "We’re always talking with our clients and market users about new products and solutions that will help them to manage their price risk."

As for CME, adding a bitcoin option would follow a relatively successful run for its bitcoin futures product, which has seen trading volumes continue to surge to new heights. Estimated outstanding notional interest has increased from under $100 million in January 2018 to more than $200 million as of August, according to data compiled by The Block.

Source: The Block, CFTC Commitment of Traders Report

CME has yet to offer traders a specific launch date. However, sources tell The Block a launch before the end of the year is a possibility. 

"Bakkt is coming in hot," one source said. "So that might incentivize them."

Another source noted, "No dates, but they're making the rounds to see who will be [designated market makers.]"

"That means they're all but ready," the person noted. 

To be sure, the crypto market is known for its uncertainty. Bakkt, the cryptocurrency venture-backed by Intercontinental Exchange, originally was looking to launch a bitcoin futures market in November 2018. Regulatory hurdles pushed that launch to later this month. 

Still, one market expert said: "If they are at this point then I think the launch is imminent. There is a lot of pent up demand to trade bitcoin options. I know there are other products out there but nothing that you can access like options on futures trading on CME."

As for the options contract, they will be settled in CME's bitcoin cash-settled futures contract — not bitcoin. 

"Delivery is by cash settlement by reference to the Final Settlement Price, equal to the CME CF Bitcoin Reference Rate (BRR) on the Last Day of Trading," the document said. 

The roll-out may come as no surprise to some market participants. The exchange has recently made some changes to its bitcoin reference rate, adding Gemini's exchange data to its feed. It is a move many sources said was an indication that the firm would be adding more products soon. 

But this news doesn't necessarily mean CME will start rolling out products tied to non-bitcoin cryptocurrency assets, according to Tim McCourt, managing director and global head of equity products and alternative investments at CME Group. 

"We’re really just focused on bitcoin, because if we get that right, that’s what is most important for our customers right now," McCourt told The Block. "Bitcoin is essential. It is our primary focus."