
Bitcoin Derivatives That Cost $1M Will Soon Be Worthless - sadiq
https://www.bloomberg.com/news/articles/2018-12-06/bitcoin-derivatives-that-cost-1-million-will-soon-be-worthless
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ptero
OK, what is the news here? Options become worthless all the time (a quick
search shows that over 90% of SP500 put options expire worthless) and their
value exceeds 1M referenced here by several orders of magnitude. What am I
missing?

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jbob2000
> What am I missing?

The word Bitcoin.

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tomp
Ok, so what the fund manager did, is sell his BTC holdings to lock in profits,
and buy back severely out-of-the-money (i.e. worthless) options, just in case
he was _really_ wrong (i.e. if BTC didn't just go to 25k, but up to and over
50k).

Presumably, his thought process was something like "if I sell now, I make $Xm.
If I wait until BTC goes to $36k, I make $2Xm... but I think that's quite
unlikely. However, it's possible, and my clients would be really mad at me if
BTC skyrockets, goes to $60k, and I chickened out at only $18k. So, what I can
do, is buy this option for cheap, forgo the profits between $18k and $50k, but
if I'm really wrong, at least I'll cash in if it goes above $50k."

So, hopefully he paid much less ($1m) than the total profit he made ($Y0m)?

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patio11
Assuming he sold as many Bitcoin as he bought calls for, the options cost more
than 20% of Bitcoin's highest price ever. (Black-Scholes is a harsh mistress.)

c.f. [http://data.ledgerx.com/top100](http://data.ledgerx.com/top100), Ctrl-F
"2017-12-20 8:39 am"

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tomp
Maybe, but that _literally_ makes no sense - there's no BTC price at which the
(sell BTC + buy options) trade makes more money than the (keep BTC) trade
(unless I miscalculated something, which is also an option).

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pathseeker
Do you mean the sell + buy options never makes more money, or do you just mean
in this current case? Are you forgetting that you can leverage up with more
options to offset that gap?

Sell securities at $X, buy calls for 2x the number of securities you had with
strike $X+$Y for $Y/10, and have the product go up to $X+($Y _2). Profit =
($Y_ 2 _2) - 0.1_ $Y = $Y _3.9.

Keep the securities, have the security go up to $X+($Y_2). Profit is $Y*2.

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tomp
in this specific case, if the option is more expensive than what you're
selling in the first place.

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lordnacho
As a former options trader, this seems to be a non-story. The story mentions
that he hedged it, so you have to look at the whole portfolio to know how he
did on it.

Even naked option trades expire worthless quite often. If you take the delta
as a roughly guess for the chance of expiring in the money, people tend to
trade the options with <50 delta.

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sekniqi
This is a no-news. Options markets have far larger bets that expire all the
time. A good options trader will hedge against upside and downside, so it's
possible this trader that is about to lose $1M has actually net profited.

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olivermarks
This type of Bloomberg is typical of the 'glass half empty' variant of
financial 'stories'. As others have explained not accurate and only discussing
a future moment in time at the end of the options cycle'. Bloomberg was also
full of 'glass half full' bitcoin articles a few months ago. Their quality
seems to be descending, reminds me of what happened to Forbes a few years ago.

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sudovancity
This is literally only being talked about because its bitcoin, and everyone
loves to jump on the "Bitcoin is dead" bandwagon. Options expire worthless all
the time.

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amrrs
A good time to talk about the reality of Time series forecasting in high-
volatile markets like this!

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Mc_Big_G
_" “These calls let me capture upside while reducing my downside risk,” Paul
told CNBC. He later tweeted that the trade -- selling some of his Bitcoin
holdings while buying the call options -- was profitable."_

So, it wasn't worthless to him and this is a meaningless story. Got it.

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KasianFranks
Not to shorts.

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superkuh
This is yet another Bloomberg article that highlights their lack of ability to
directly perceive cryptocurrencies. They tend to get them confused with the
parasitic financial markets that have sprouted up adjacent because that is
their business and what matters to their readers. It's like describing an
elephant by observing the behavior of the flies that swarm it's droppings.

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belltaco
Not really, the Bitcoin community was the one that made it a financial
instrument once Bitcoin went from being called 'a payment system' to 'a store
of value'. The community has repeatedly resisted making transfers faster,
cheaper or easier due to various reasons(some valid), leading to various forks
and altcoins.

The general Bitcoin community also celebrates every time a Wall Street firm
starts trading in bitcoin, saying that's a way of Bitcoin going mainstream and
being accepted as a store of value.

