CME Reduced the Tick Size for Low-Premium Bitcoin Options

Chicago Mercantile Exchange implemented a smaller minimum price increment for low-premium options on Bitcoin futures on May 3, 2020, for the May 4 trade date. The change allowed qualifying contracts to be quoted in $1-per-bitcoin increments, equal to $5 for an option covering one five-bitcoin futures contract.

Before the amendment, CME permitted option prices only in increments of five Bitcoin Reference Rate index points. Because each point represented $1 per bitcoin and the underlying futures contract represented five bitcoin, one tick equaled $25 per option contract.

The revised Rule 350A01.C retained that $25 contract-level tick when an option premium exceeded 25 index points, or $125 per contract. At premiums of 25 points or less, however, the minimum fell to one point—$1 per bitcoin or $5 per contract. CME also permitted one-point increments for qualifying option spreads and combinations whose absolute net premium was no more than 25 points.

Finer prices at the low end

A tick is the smallest permitted movement in a quoted price. Reducing it does not automatically lower an option’s premium, generate liquidity or change the economic exposure represented by the contract. It changes the set of prices at which market participants may submit bids, offers and trades.

Under the previous rule, an option could be quoted at five, 10, 15 or 20 index points but not at 11 or 12. Under the May 3 rule, a low-premium option could use each integer price through 25 points. Above that threshold, the five-point schedule continued.

Mechanically, the amendment allowed buyers and sellers of relatively inexpensive options to negotiate across smaller intervals. A participant no longer had to move an entire $25 per contract between adjacent permissible prices when the premium was within the reduced-tick range. Whether that produced narrower bid-ask spreads or more trading was an empirical question that the rule change itself could not answer.

A regulated product still seeking depth

CME had introduced options on its Bitcoin futures on January 13, 2020. Each option represented the right to enter one CME Bitcoin futures contract, and each underlying contract represented five bitcoin. The options were European-style, meaning exercise occurred at expiration, and were listed on CME Globex with clearing available through CME ClearPort.

The May adjustment arrived after uneven early activity. CoinDesk reported on March 19 that only three CME Bitcoin options contracts, representing 15 bitcoin of notional exposure, traded on March 17. It described that session as the product’s lowest daily volume to that point, based on CME information and Skew data. The same report placed open interest at $8.4 million on March 17, below the reported February 28 peak of $22 million.

Those March figures provide contemporaneous context, not evidence that CME adopted the smaller tick because of any single volume observation. The exchange’s March 5 special report specified the rule mechanics and effective date but did not quantify an expected effect on spreads, volume or open interest.

Operational and regulatory boundaries

CME’s technical notice instructed customers to cancel affected Good ’Till Cancel and Good ’Till Date orders by the May 1 close. Remaining orders were scheduled for cancellation or deletion after 16:00 Central Time so the variable-tick framework could begin cleanly.

The amendment applied to exchange-listed derivatives, not spot bitcoin transactions. It did not change Bitcoin’s protocol, mining schedule or circulating supply, and it did not provide ownership or delivery of bitcoin through the option itself. Nor did it establish a market price for bitcoin on May 3.

The verified event was narrower: CME gave its four-month-old Bitcoin options market finer quoting precision for low premiums. That was a modest technical amendment, but an institutionally relevant one because contract design—including tick size—helps determine how efficiently a regulated derivatives market can express prices and transfer risk.