January 17, 2018 / 6:54 PM / a year ago

Shorts on top as January CBOE bitcoin futures near settlement

NEW YORK, Jan 17 (Reuters) - The slide in bitcoin’s price in recent weeks has favored bearish bets on the cryptocurrency, and with January futures expiring on Wednesday, speculators who had loaded up on bearish positions in front-month contracts will reap big gains.

Bitcoin futures started trading on Cboe Global Markets’ Cboe Futures Exchange on Dec. 10, and since then the cryptocurrency has lost about 27 percent of its value on the Gemini Exchange.

January contracts, which started trading at $15,000, have fallen about 36 percent since then to $9,650. The futures are based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs and brothers Cameron and Tyler Winklevoss.

So far, speculative positioning on the Cboe bitcoin contracts has leaned to the short side. To be short a futures contract means traders believe the underlying security will fall in value.

Speculators’ net short position on bitcoin Cboe futures rose to 1,907 contracts in the week to Jan. 9, Commodity Futures Trading Commission data showed on Friday.

The bulk of volume and open interest had been centered in the front month, suggesting much of that short position is likewise concentrated in January.

To be sure, some front-month positions may have since been closed out or rolled forward into future months.

“Someone who shorted bitcoin futures last week would potentially be very happy this week,” said Steve Sosnick, chief options strategist at Interactive Brokers Group Inc in Greenwich, Connecticut.

The approaching settlement could add an extra dose of volatility to the cryptocurrency’s already wild gyrations.

“Large equity indices can often show volatility around expirations and those are highly liquid instruments traded on highly regulated exchanges,” said Sosnick.

“While bitcoin futures are traded on highly regulated exchanges the underlying product is not. Considering the volatility we have seen over the past couple of days it makes me wonder what we are going to see going into the settlement,” he said. (Reporting by Saqib Iqbal Ahmed; Editing by Meredith Mazzilli)

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