Strategic Implications of Cboe's New Strike Price Rules for MBTX and MGTN Options

The Cboe Exchange's recent implementation of $1 strike price intervals for options on the Cboe Mini Bitcoin U.S. ETF Index (MBTX) and the Cboe Magnificent 10 Index (MGTN) marks a pivotal shift in options trading dynamics. Effective December 8, 2025, this rule change, approved by the SEC under immediate-effectiveness provisions, aims to enhance portfolio flexibility and hedging efficiency for investors navigating volatile markets. By narrowing strike price intervals, Cboe addresses the evolving needs of traders exposed to high-conviction assets like Bitcoin-linked ETFs and large-cap tech indices, which are increasingly subject to rapid price swings and correlated movements with traditional equities.

Portfolio Flexibility: Precision in Position Management

The $1 strike interval introduces a granular options chain structure, enabling investors to align their strategies more closely with market realities. For instance, the Cboe Magnificent 10 Index (MGTN)-an equal-weighted basket of 10 large-cap U.S. technology and growth stocks-now offers options with both AM-settled and PM-settled contracts, providing flexibility in managing exposure across different settlement timelines. This granularity is particularly valuable for volatile indices like MGTN, where price movements can be abrupt and asymmetric. A $1 interval allows traders to select strike prices that better match their risk tolerance and market outlook, reducing the need for overhedges or underhedges that often accompany wider intervals.

For MBTX options, which track a Bitcoin-linked ETF, the $1 interval complements the asset's inherent volatility. Bitcoin's correlation with the S&P 500 has risen since the approval of Bitcoin spot ETFs in early 2024, diminishing its role as a standalone hedge. However, the narrower strike intervals now enable investors to fine-tune their positions in MBTX options, balancing exposure to Bitcoin's residual idiosyncratic risks while leveraging its partial alignment with equities. This precision is critical for portfolio managers seeking to allocate capital dynamically across asset classes without overcommitting to single-name risks.

Hedging Efficiency: Mitigating Risk in a Correlated World

The strategic value of $1 strike intervals is amplified in hedging scenarios. Traditional hedging strategies often rely on options with wider strike intervals, which can leave portfolios vulnerable to gaps in protection. For example, if the MGTN Index moves by $5 in a single day, a $5 strike interval would leave hedgers exposed to intermediate price levels. By contrast, $1 intervals allow for continuous coverage, ensuring that hedging strategies can adapt to incremental price shifts. This is especially relevant for the MGTN, which aggregates risks from 10 high-beta stocks, each with distinct volatility profiles.

The MBTX options market also benefits from this structure. While Bitcoin's correlation with gold has stabilized near zero, its growing integration into traditional portfolios-via ETFs-has made it more susceptible to equity-driven volatility. Narrower strike intervals enable investors to hedge MBTX positions with greater accuracy, particularly during periods of market stress when Bitcoin's price may diverge from its equity correlations. For instance, a trader could use a series of $1-strike options to create a collar strategy that limits downside risk without capping upside potential, a tactic that would be less effective with wider intervals.

Market Implications: Broader Participation and Liquidity

Cboe's rule changes also signal a broader effort to align options trading with the realities of modern markets. The introduction of $1 intervals for MBTX and MGTN options is accompanied by revised fee structures, including transaction charges for customer and professional orders, as well as rebates for liquidity providers. These adjustments aim to incentivize market-making activity, ensuring that the options chains remain liquid and deep enough to support sophisticated strategies. For institutional investors, this liquidity is essential for executing large hedging or speculative positions without significant slippage.

Moreover, the MGTN's equal-weighted structure-unlike the market-cap-weighted S&P 500-introduces unique risks, as underperforming stocks can disproportionately impact the index. The $1 strike intervals, combined with the index's $100 multiplier, allow investors to hedge these risks with surgical precision. For example, a $1 move in the MGTN index translates to a $100 change in contract value, making it easier to calculate and manage risk exposure. This level of granularity is particularly appealing to international investors, who can now access nearly 24-hour trading via Cboe Futures Exchange, further enhancing the index's global utility.

Conclusion

Cboe's $1 strike price intervals for MBTX and MGTN options represent a forward-looking response to the demands of a market increasingly defined by volatility and interconnectedness. By enhancing portfolio flexibility and hedging efficiency, these rules empower investors to navigate the complexities of Bitcoin-linked ETFs and tech-heavy indices with greater confidence. As the financial landscape continues to evolve, such innovations will likely become standard, reinforcing the role of options as indispensable tools for risk management in a multi-asset world.