Bitcoin underwent its much-anticipated reward halving on Monday, at which point the reward per block mined was reduced from 12.5 to 6.25 BTC.
On the same day, daily options trading volume on the CME jumped to $17 million, surpassing the lifetime high of $9.9 million set on May 6, according to data provided by crypto derivatives research firm Skew. Notably, volume has continued to grow ever since.
On Tuesday, the CME set a new record of $30 million, which was smashed on the following day with a total tally of $40 million. The exchange recorded volume of $36 million on Thursday, marking a 2,000% rise from the volume of $1.7 million registered a week ago.
Volume refers to the number of contacts traded during a specific period. Options are derivative contracts that give the purchaser the right to buy or sell the underlying asset at a predetermined price on or before the specified date. A call option represents a right to buy, and a put option represents a right to sell.
CME has also recorded an over 270% rise in open interest over the last seven days.
Open interest, or the number of outstanding positions at a given point of time, hit consecutive record highs on Tuesday, Wednesday and Thursday. The exchange closed trading on Thursday with $142 million worth of open positions.
The surge in both volumes and open interest represents increased institutional participation. “Options are one product that attract sophisticated traders,” Skew’s CEO Emmanuel Goh said at Consensus: Distributed on Thursday.
Sophisticated traders or institutions usually take positions in options to hedge their positions in the spot or futures market. For instance, prominent trading firms held long positions in the spot market and bought put options (bearish bets) to protect against a sudden downside move in the days leading up to the reward halving.
Similar hybrid strategies may have boosted activity on the CME over the past few days. Moreover, investors had strong reason to hedge over the past seven days due to increased price volatility. Bitcoin fell sharply from $10,000 to $8,000 last weekend, catching some traders off guard. Prices then rose to almost $10,000 on Wednesday. Most analysts were expecting prices to correct after the halving.
The post-halving surge in activity on CME has been mainly driven by increased interest in call options. “It has been mostly calls expiring in May and June,” Goh told CoinDesk in a Telegram chat. However, it is not clear whether investors bought or sold calls.
It looks possible that investors are hedging by accumulating puts. That's because the one-month put-call skew, which measures the price of puts relative to that of calls, has increased from 4% to 12% in the last 24 hours, according to Skew data.
However, Skew’s option market metrics are based on data from Panama-based Deribit exchange – the largest options exchange by trading volumes. “We mark our implied vol curve and skew out the deribit market. CME might see a different dynamic," Goh said.
While activity on CME has surged this week, the exchange still contributes a very small amount of the aggregate options trading volume.
The Chicago exchange accounted for 17% of the total global trading volume of $205 million registered on Wednesday. Meanwhile, more than 70%, or $149 million, came from Deribit.
As seen above, options volume has risen on all major exchanges in the days around the halving.