Malta-headquartered digital asset exchange OKEx has introduced Bitcoin (BTC) options trading for a certain group of crypto traders ahead of their official public launch, which is scheduled for January of next year.
According to a release, OKEx claims it’s ranked third-largest out of all digital currency exchanges in terms of 24-hour trading volume. The exchange says that the new BTC options contracts will be physically settled at the end of the trading period each day.
Options are a popular cryptocurrency derivative that allows traders to hedge against extreme price swings in volatile digital assets in both the positive and negative direction. Options contracts give traders the opportunity to exercise either a right to purchase (called a “call” option) or sell (a “put” option) a particular asset at a determined “strike price.” This strike price is calculated on or prior to the option contract’s date of expiration.
OKEx’s management notes that its BTC options contract will be based on the Black-Scholes pricing model, a type of valuation algorithm that has formed the basis for the pricing model of options for financial assets since the 1970s. The new contract will reportedly use real-time pricing data and is being rolled out as part of an update to OKEx’s trading infrastructure.
In addition to bitcoin options contracts, OKEx now offers margin trading, futures and perpetual swaps markets for crypto-assets. These trading contracts aim to diversify the trading and hedging strategies that can be used by OKEx platform users.
Lennix Lai, financial market director of OKEx, explained:
“Options are a unique instrument that enables traders to manage, price and hedge the volatility of crypto assets … to take advantage of more than just market direction. We welcome clients from different segments, especially from our institutional clients, who have shown the fastest-growing demand in derivatives trading, especially on futures and perpetual swaps.”
After its initial limited availability period for a select group of traders, the new bitcoin options contract will reportedly be open to the general public on January 9, 2020.
The Chicago Mercantile Exchange (CME) Group has recently said that it is anticipating greater demand in Asia for its upcoming Bitcoin options contracts.
Tim McCourt, CME Group’s global head of equity index and alternative investment products, said that unlike cryptocurrency futures contracts, which allow traders to gain “one-for-one exposure,” options provide both downside protection and upside exposure at a small fraction of the asset’s market price.
Last month, OKEx introduced BTC futures contracts margined with the leading stablecoin, Tether (USDT), and intends to also offer futures for EOS, Ether (ETH), Litecoin (LTC), Bitcoin Cash (BCH), XRP and Tron (TRX).