Bitcoin Options Purchased for $1 Million Will Soon Be Worthless (bloomberg.com) 59
"The biggest-ever bet on Bitcoin options is about to expire worthless," reports Bloomberg:
Purchased for almost $1 million on LedgerX's trading platform just days after Bitcoin peaked a year ago, the call options have a strike price of $50,000 and an expiry date of Dec. 28, 2018. For the contracts to retain any value at expiry, Bitcoin would need to rally more than 1,400 percent.
The options' almost certain wipeout is a less-than-ideal outcome for the buyer, but it may not be quite as bad as it seems. Ari Paul, a cryptocurrency fund manager at BlockTower Capital, has indicated that he bought the options while simultaneously selling some of his fund's Bitcoin holdings... He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable.
The options' almost certain wipeout is a less-than-ideal outcome for the buyer, but it may not be quite as bad as it seems. Ari Paul, a cryptocurrency fund manager at BlockTower Capital, has indicated that he bought the options while simultaneously selling some of his fund's Bitcoin holdings... He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable.
No more Bitcoin articles please (Score:5, Insightful)
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Completely agree. Tagged this story "nomorebitcoinstories".
Re:No more Bitcoin articles please (Score:4, Insightful)
While I agree that stories about bitcoin market movements aren't appropriate for slashdot, real news about bitcoin (the technology) always should be.
If you disagree, tell me how "a game theory based system for ensuring trust by writing entries to a global decentralised ledger built around a proof of work system that can be modelled more effectively using equations more at home with a physicist than an economist or computer scientist (specifically those regarding entropy and information transmission/density)" isn't "news for nerds".
Re: sha256 is not nerdy? (Score:1)
No, the thing is bitcoin wasnâ(TM)t a âoenerd revolutionâ, but itâ(TM)s been presented as one. The reality is, you dig into a lot of the big Wall Street names you find billionaires doing dirt, largely unaccountable. Bitcoin is about billionaires doing dirt TOTALLY unaccountable. Blockchain has cool applications, but the dark flip side of anonymity is unaccountability for powerful people, thatâ(TM)s not something nerds want to rally behind despite endless blockchain stories.
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Is someone gaming the market here
If they were, how would they be profiting from it?
... in the same way the stock market sometimes fluctuates in suspicious manners?
When shown randomness, people will perceive patterns where none exist.
Actual suspicious stock movements are usually caused by trading on insider information. How would that work with bitcoin, where information is public and there is no "inside"?
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There's tons of insider trading in the Bitcoin world and the market is gamed six ways to Sunday.
Can you explain how that is possible, even in theory?
The code is open. The blockchain is open. So who is the "insider"?
It is common to believe there are vast conspiracies behind every problem in the world. But most are caused by plain ol' stupidity and incompetence.
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The price of Bitcoin isn't determined by Open Source code. It is influenced by many decisions that you and I will not learn about before the trades are already locked in. For example decisions about limiting Bitcoin use and trade in China, decisions by large mining pools to accept or reject protocol changes, decisions by large companies to start accepting Bitcoin or to phase out Bitcoin payments, and so on. The market is easily gamed because Bitcoin is very unevenly distributed and there is next to no overs
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Bitcoin can handle something like 7 transactions per second on the public ledger. The vast majority of trades are not on the ledger, they're derivatives. An exchange owns N bitcoins and holds them for their customers. Customers can trade them by simply updating the exchange's record of who it will pay the bitcoins to. If someone wishes to claim their bitcoins, the exchange will transfer them to that person's bitcoin wallet, though with the speed of processing that may take a day or two to actually go th
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Sell millions of dollars worth of BTC options and then depress the price to ensure they're worthless?
How does one "depress the price" without losing money?
The collective value of all bitcoins declined by $200B in the past year.
Are you seriously claiming that someone dumped enough bitcoins to depress the market by $200B in order to make $0.001B?
The Flat Earth Society has a more plausible theory than that.
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"How does one "depress the price" without losing money?"
By selling more in options than the cost of depressing the price?
By selling options and holding enough coin in reserve to tank the market?
As long as there are people with amounts of both coin and currency that the rest of us can't even truely fathom there are ways. A pool of hedge funds kept the entire AMD stock price depressed for months because they had a boatload of shorts at ridiculously low prices, but even having billions in shorts still left the
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"You think a competing hedge fund wouldn't exploit this for all its worth?"
Of course they did, but their goal isn't to bankrupt each other, they exploit it to their own profit not piss their funds away against the other hedge fund. Also the top players are so interdependent and incestuous they are basically all one team. The 60% who lose aren't the banks and hedge funds, they are the suckers trying to play the market honestly.
"So they subsidised the price of heaps of shares to new investors at discount pric
Re:Were items like this the real reason for the dr (Score:5, Informative)
It's possible that someone is gaming the market unethically, but this is an example of how you game the market ethically.
The dude sold a bunch of BTC around $20k to lock in the gains, and then because he did not want to be out-of-luck if it kept going up he bought the option to buy back in at $20k. If the price is less then $20k the option is worthless, so the person who is on the other side of the contract got a free $50k. If BTC continued to increase that person could be in trouble.
It's called "hedging," and it is clearly gaming the system, but the only people who can be screwed are the people involved in the actual contract. Pretty much the only way it could affect the market is if the price went above that $20k strike price and the dude called the option by forcing the other side to sell BTC to him at $20k, because they'd have to get those BTC somewhere.
Old saying... (Score:1)
Fools and their money are soon parted.
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Wrong...
selling some of his Bitcoin holdings while buying the call options
This kind of hedging strategy is EXACTLY what call and put options are for. Repeat after me: Options are a hedging strategy and not an investment by themselves.
If this was a story about someone who had sunk all their savings into options as an "investment" then yes, it would be a fool-parted-from-money story, but it isn't.
Gamblers... (Score:4, Funny)
He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable.
I noticed that when you ask consistently losing gamblers how they're doing, they'll very often say they're about even, or maybe a little up...
Re:Gamblers... (Score:4, Informative)
(sighs... meh, might as well at least fire off a couple rounds, even if I'm not willing to die on this hill):
If a traded commodity is at 17000, and you're not sure if it will climb or fall, numerous contracts are possible.
This guy sold X in Bitcoin (BTC), and bought Y in options.
If BTC values grew above some amount, Y options would go 'kaching' far in excess of the 'unrealized gain' of X bitcoin he sold early.
If BTC shrank below some amount, his X sold at 17000 look brilliant, and his profit on them is far in excess of the loss of his options.
And if BTC sat idle at that position, he'd lose the $1M, not feel clever for cashing out early, not feel clever for the option, but be armed with new knowledge of BTC having endured umpteen months of relative stability.... yeah, that was never going to happen.
And let's face it, if he sold BTC anywhere from 8000 to 17000 and felt the urge to buy $1M of options, he likely cashed out more than a thousand BTC. Several million in value. Since options contracts cost pennies on the dollar, this $1M contract was likely struck so he'd have tens of millions of profit waiting if BTC had doubled again.
Bracketing like this is an everyday thing for hedge funds. A multinational agricultural company I worked in used to do so each year on fuel prices, so they knew their price of tractor and transport fuel would be between $1.75 and $2.00 per gallon. Airlines buy options when they see possibilities of fuel price shifts. Speculators in currencies set up options that either pay on high volatility, or limit their profit/loss to a narrow percentage. Quants do trades based on trends they think only they see, and sometimes get a bracket in case they're wrong.
It's called a hedge. (Score:5, Informative)
Nothing to see here. Options are often bought to guard an opposite investment. If the asset moves in the unexpected direction, the option limits the damage. In this case the asset moved in the expected direction and the option wasn't exercised.
This is trivia, not news (Score:3)
I get the interest in cryptocurrency. The field of full of nerd related news and interesting tech, psychology and social impact. But this, its just: here's the biggest bet gone wrong. Trivia.
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It's a bizarre trade, so far out of the money. But maybe that doesn't mean a whole lot to the audience here.
logical fallacy (Score:2)
but it may not be quite as bad as it seems.
FFS, just because you also made some other transactions that weren't flea bitten dogs doesn't make this transaction any better.
Re: logical fallacy (Score:2)
Hedging is common. The buyer of this option likely expected that it would expire worthless when he bought it but wanted an insurance policy in case bitcoin really did take off.
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This wasn't hedging, he had sold the initial bitcoin, he left an open position with options. No Hedging, that isn't hedging It is gambling.
Apparently you don't understand what hedging is. He sold his bitcoin and with some of the profits bought the option to buy them back in the future if they continued to go up. This is pretty much the definition of hedging. Basically it's a form of having your cake and eating it too. In this case he set himself up to get profit while selling while also having the potential to have a profit like he never sold.
Re:logical fallacy (Score:5, Informative)
Speaking as someone who does a bit of trading, this actually makes complete sense and was a prudent strategy. There exist quite a few strategies in trading that require purchasing options you expect to expire worthless and I can explain what we're seeing here without even getting into anything exotic:
He stated explicitly that he sold bitcoin at the same point as purchasing these options. That he sold means he was expecting the price to drop. One move you can make to cash when you expect a price drop is to borrow shares, sell them, and then replace them after the price drops. This called selling short (I'm actually holding such a position in my portfolio right now). If you're wrong when you sell short, you cash out at a loss - and if bitcoin had kept skyrocketing that could have been a devastating loss - potentially unlimited, in fact. If you buy call options, however, your loss is capped because replacing the shares you sold cannot cost you more than the strike price.
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All that is true, but normally you aren't hedging into a tulip euphoria where you pony up seven figures for a strike price that winds up 14x out of the strike zone, though results may vary in Japan, where Godzilla is DH eligible.
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I'm not sure I follow the flowery language (pun intended). A 7 figure insurance policy when you're working at an 8 to 9 figure scale is completely reasonable.
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I am sure he made a very tidy profit. He sold Bitcoin near the all time high, and hedged against a further price hike by buying cheap call options just in case Bitcoin was about to go to the moon. The hedge turned out to be unnecessary, as hedges often do if you trade well, but his bet was correct.
Good (Score:1)
It should never have been traded in the first place. it should have remained a digital micro-payment platform.
That explains the sudden price drop (Score:1)
Well if options are going to expire at the end of the year that explains the sudden price drops. It will pick in 2019 after "investors'" money (aka options) have been lost.
Glad I'm in Dogecoin (Score:2)
Strange Coincidence? (Score:2)
So the options will soon be worth the same as Bitcoin?
My money will make money someday (Score:2)