It is the Bitcoin futures expiration day today - What does that mean for you?


Today is the CME Bitcoin (BTC) futures expiry date and this has in the past led to some volatility.

For those of you are not familiar with futures trading if you let your positions run to the date of expiry then you are left with the underlying asset at that price.

If you are trading on margin, you are then liable for the rest of the money to take delivery of the product. In this case Bitcoin.

If you are happy to keep holding the futures contract you can roll over to the next month but this does cost a fee and the fee will vary depending on the broker.

This is some risk to doing this as the price may get volatile in the next contract depending on how many people want to roll over or not (supply vs demand).

At this point most of the volume as shifted from the August contract to the September one but there is a small USD 80 price discrepancy. 

Here is an example from the CME groups website:

A large investor is long 50 January 2018 Bitcoin futures (BTCF8) contracts. The portfolio manager for the fund wants to continue his long bitcoin exposure beyond the January expiration (last Friday of the contract month).  He enters a calendar spread order to roll his contracts forward to the March expiry.

The FCM then enters a calendar spread order.   A calendar spread order guarantees that the two transactions will be filled at the same time or not at all.  Therefore, eliminating the possibility that the market moves away from you in the interim.

In the case of bitcoin, the investor’s FCM would sell 50 January futures (BTCF8) and simultaneously buy 50 March Bitcoin futures (BTCH8). With an existing long position in January Bitcoin futures, selling the January futures and buying March Bitcoin futures would result in an offsetting position, or net-zero position, in January. This leaves the trader with a long position in 50 March contracts, giving an additional two months to profit should bitcoin continue to advance.

While the investor chose to roll into March futures, he could also have rolled into the February or June contracts depending on his time frame, relative pricing for each contract month, and outlook for the price of bitcoin.

So you see it might not be as straight forward as you think to trade BTC futures. There are some things you need to consider on the expiration date that could affect your trading strategy. Over the last 3 sessions, there has been big volume due to the rollover. Don't get this confused with buying as selling volume but it may cause some volatility as there was for last months contract on 28th July. 

 

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