Bitcoin Forum

WOW

https://i.imgur.com/OebKdAJ.png
http://dpaste.com/1585744/

http://mpex.co

EDIT: I don't know the legitimacy of this, I'm just sharing and want to know more.

I believe they are. It looks like someone is betting 5000 BTC (4 million USD) that the price will be going DOWN…..please correct me if I'm wrong, because I think this is a big deal.

Here is some ppl taking about it on IRC: http://log.bitcoin-assets.com/?date=04-02-2014#479318

You do realize that a whale planning to buy thousands of BTC would put in exactly this type of put option to hedge his position, right?

I have no idea what apex is and I guess that big list of figures can just be a big pile of turd....

....but if the figures are legit and relate to actual put options, then I guess there is a whole pile of Bitcoin related money hedging their positions and/or speculating on Bitcoin going down.


Go back over your post history and show me one time that you have actually been right since Bitcoin went into reverse and the '2 da moon' calls stopped cutting it. Although I can't honestly say that I can decipher what the fuck these 'orders' actually entail from the information I have, the fact that you reckon it's all whales hedging themselves before they go on a massive Bitcoin buying spree, makes me think it is far more likely to be those in the know, hedging against a massive fall in the price of Bitcoin.

Don't worry, it's just Walsoraj.

are you able to tell us what these orders actually mean. Are these option contracts to sell Bitcoin at a future date at these much lower prices?

 :D :D :D

I have never engaged in a Put option.

From what I understand. A holder of an asset can protect themselves by buying a contract allowing them the option of selling an asset at a stated price, at a certain date in the future. In this case, the holders of the Put option would have the right to sell a big fkn pile of BTC to the counterparty at between $410 - $500, which would have to mean that they thought there was a risk of Bitcoin going much lower and were trying to lock in wealth.

The other way around, would be someone buying the put option giving them the option of buying Bitcoins at $410 - $500 at a certain date in the future. But given the current market conditions, I can't see anyone agreeing to be the counterparty to such a contract. To agree to be a counter-party to such a contract, you would have to be utterly convinced that Bitcoin was going much lower and that there was no chance of the option ever being claimed.

Therefore, if these numbers and letters relate to any real financial deals, it must surely be owners of large amount of Bitcoins hedging themselves against total collapse of the market. Nothing else makes sense. Especially not the kneejerk denialist response of that fkn div, billyjoeallen. (the man who wants to start his own Bitcoin 'consultancy' .. :o shudderrrrrr...  :-[   )

Translation: Walsoraj saw this thread and is now preceding to fuck with you.  ;D

Hi,


if someone thinks that one month from now the price will be 400$ why that person dont sell now????

 somebodys brain isnt working

Thats pretty much what they did. If you want to know more about options: http://www.investopedia.com/terms/p/putoption.asp

I would be very surprised if anyone made a $4M bet using that site. Use your brains people, if someone bought puts at 400-500 for 4 million how much would whoever issued those need to put up, probably somewhere around $100M  ::)

Trying to figure out that site makes my brain hurt, but this might be a hint:
"One lot consists of 0.1 BTC. All options expire on the last minute of the last Friday of their month (UTC times)."

Also there is no way anyone pays 487 bitcoins to be able to sell 1000 bitcoins for $500 in one month. If you do not see why, you might be interested in the bet I proposed here: https://bitcointalk.org/index.php?topic=445142.0

I just read their FAQ which basically says to their customer base "idiots fuck off and die".  

With that level of professionalism from the site admin I doubt anyone in their right mind is putting significant sums on the site.  

Also their joining fee is still stated as 30 BTC !

Amusing but wouldn't take them seriously.

High prices makes idiots think they're part of some elite. I don't take em seriously either.

That is someone selling puts to the MPEX bot.  They are going short 25,000 PUT contracts that are deep in the money. Note, that the contract is for the price of 0.1BTC.  So they are shorting puts with at strike price from $4100 - $5000 / BTC

About an $8,000,000 notional value on those contracts now.  Looks like a pretty smart play actually.  Current BTC price is $847.  It is extremely expensive to purchase calls or puts on MPEx due to the huge volatility premium.  But you can sell to the market maker for more reasonable mark up if you have additional backing capital deposited to cover the short risk.

Let's run the numbers :
If expiry happened today, simplifying calculations as if all contracts were P500Ts...
 (5000-847)/847*.1BTC = .490 price, or break even. 

But expiry in end of month, so by then,
If BTC drops to $700, (5000-700)/700*.1BTC = .614, or about a 25,000*(.49-.614) = 3100BTC loss
If BTC rises to $1000, (5000-1000)/1000*.1 = .4, or 25,000*(.49-.4) = 2250BTC gain

Love or hate MPEX, it is the only place in the world that has proven it can handle this sort of exposure. In fact, this is a pretty small position in BTC terms compared to what people were throwing around in march 2013.  I believe they paid out 19,407 BTC that month (http://trilema.com/2013/mpoe-march-2013-statement/) to people that bought calls, of which 15,000BTC was personally covered by Mr. Popescu, which appears to have wiped out all of the profits he made from the first 2 years of operations of MPEx.

It's actually an over $8M bet on the price to rise.  Its a set of naked short puts DITM, where downside exposure is technically unlimited. The position holder would probably need to cover for a 25,000 BTC loss if the bitcoin price dropped below $500 /BTC during the month.  However, they will make a sizable profit if the price goes up.

Thanks for translating Bugpowder. I think this is the second time you've jumped in and explained one of these things to me.

Yup....this is why the forum needs a thumbs up system. People need a means of showing approval and appreciation without spamming up the thread with posts like this one.

He's deep under the water right now.

Yah... Valuation is based on the 24VWAP of all USD exchanges (from bitcoincharts).  The mtgox collapse hurts particularly bad then, as it figures into the level.

Current price $777.... he is down about 0.05BTC / contract, so 1250BTC or $1M.  The sick part is that to cover, he needs to buy back from the bot, and the spread the bot provides is a full 0.5BTC.  So he would need to spend 25,000BTC to close the position (for a 12,500BTC loss).  I suppose he will probably just sit tight...

he's wishing it was at 700 at this point.

There was large stack of puts sold on mpex.co yesterday.  Maybe the guy that sold them is trying to hedge on different exchanges?

http://mpex.co/

scroll down to
O.USD.P410T

oh, nevermind you were talking about mpex I though apex was some different exchange or something...

He is now down about 3800BTC.

OUCHIE!

Holy crap this makes my head hurt just trying to figure out how this whole thing works... So when someone buys put options they basically insure themselves against a price drop in the future. For instance if I had just bought 1000 BTC but wanted to insure myself against a price drop I could buy some put options with it that insure me that I can sell at a predetermined price at some point in the future or before it. So if the price crashes way below my put price I could choose to sell my BTC at the predetermined price. Now what happened here is that someone naked shorted those puts which makes it a little bit more complicated to wrap my head around. So basically someone borrowed puts that don't exist and sold those to that mpex bot, but he will have to buy those non-existing puts back at some point in the future. When the price goes down those puts will become more expensive, but if the price rises they will become cheaper. Did I get this right? As for the reason why someone would do that, I guess it's because there's not enough liquidity to do it through buying and selling actual BTC on the market.

modern financial games that I do not understand.

Correct, except for the reason why he sold puts instead of buying calls is that the market-making bot charges a HUGE markup if you want to buy options from it.  But you can always sell to the bot for at least the current nominal value, so you get a better value selling to bot than buying from bot.  But then you have unlimited downside risk (in BTC terms).

What is the significance of varying strike prices between $4100-$5000?

From what I understand it limits the upside potential, so if the price at the end of the month is $5000 or $10,000 it makes no difference.

But why would someone choose varying options between $4100 and $5000? Does the premium vary with the strike price such that shorting a put option with a strike price of $2000 is cheaper than one with a strike price of $5000? If so, does it indicate the person expects the price to be between $4100-$5000 at the end of the month?

Finally, what collateral was required to naked short the put options? And was that amount in USD or BTC?

Thanks

This would work only if the options payoff was in fiat. If payoff is in BTC, it has negative convexity that negates the hedge. If BTC goes to zero, the hedge will have made a lot of BTC, but still zero dollars.
On top of that, if BTC does collapse, the "whale" is going to learn about counterparty risk.

So if BTC is at $700, he has a 3100*$700 = $2170000 loss and if BTC is at $1000 he has 2250*$1000=$2250000 gain. Selling $2.2m worth of BTC at $850 or higher guarantees a riskless profit. It seems that the market making bot mispriced the options and someone took advantage of that ensuring an arbitrage.

I think this is a key statement for a variety of short type products available across the market.  The exchanges are all heavily vested in the price of BTC, and it BTC goes to $1, you will likely never see any proceeds of your short position.

this did not go well for them  :o

Answers :

Bot only quotes 1000 contracts at a time per strike, and occasionally sells out of a strike, so if you want to build a big position quickly, you can spread across multiple strikes.

The premium does vary across strikes, but this deep into the money there isn't much time premium.  However, the intrinsic value of each contract does vary across strikes.

From the FAQ : "Each CALL requires 1 BTC of collateral irrespective of strike. Each PUT requires an amount of collateral equal to strike / spot BTC . "

Everything is done in BTC, no fiat.

Yes, if price goes over $5000 by end of month, all the put contracts will expire worthless, and the seller will have pocketed ~12,500BTC.  So far it's not looking good for the seller though.

Yes, hedging declines in fiat valuation by buying puts fails if BTC price goes to 0.  There is a wide band in which it theortically works though. That said, winning trades on puts purchases are extremely rare due to the purchase premium and bitcoin's tendency to explode upwards.

If you think the bot is mispricing the options, you might be right, but probably are missing something.  Open a position if you think they are off!  You can trade MPEX securities here http://coinbr.com/ref?c=t1vLT2E7SK (http://coinbr.com/ref?c=t1vLT2E7SK) without paying the 30BTC registration fee.

Outlook :

The short puts whale might have been stopped out of his position, nobody knows. The bot has stopped quoting for now, presumably to prevent increased exposure from asymmetric news releases in a high volatility period. I imagine it will start quoting again soon.

+1

And the bot is quoting again. Hey, only down 0.2BTC / contract...  Maybe he pulls it off, if he didn't get stopped out.  Currently down 5000BTC.

thanks  :)

When do the options expire?

end of the month

Last Friday of the month, Romania time.

Down 6500BTC.  :-[

Seems like he picked the worst time to short those options.

There's two more weeks left, a lot can happen in two weeks in Bitcoin.

You guys assume that he didn't delta hedge the options, i.e. he didn't sell the exact amount of BTC needed to lock the gains from the options mispricing, as I explained earlier. I'm pretty sure that's exactly what he did and he locked a gain for any price of BTC < $5000, with the additional twist of counterparty risk (if the BTC was sold in the same exchange that's less of a problem).

I seriously doubt this is what actually happened. This position would be very difficult to hedge due to liquidity. A $2.17m loss is not easy to cover with a price movement from $850 to $700...

Down 8,300 BTC.

This strategy is actually looking pretty juicy now...  .82 per contract!

I need to understand this stuff better... what do you mean the strategy is "looking pretty juicy"... isn't this a bad thing for the person who executed this strategy?

I mean, there is a lot of value to extract by implementing the strategy from this current price point.  Though hugely risky too.

Well, the MPOE bot stopped quoting due to "exchange divergence"

BUT, that guy short the 24,000 contracts is dead.

($5000-$430)/$430 * 0.1BTC * 24,000 contracts - 10000 BTC proceeds from original sale = about a 15,500 BTC  loss at the moment...

EPIC loss.  Complete annihilation of a trading account which was worth >$10,000,000 a few weeks ago.

Is it over? Doesn't he have until the end of the month?

Depends if he was stopped out.  Since bot still is not quoting, I think he is OK.

With the gox crash I can't imagine this guy hasn't been stopped out by now. Looks like MP will (probably) have a big payday this month...

When the bot has stopped quoting, then exercise occurs at the last quoted price.  So nominally he is still only down ~6500BTC.  Who knows how MP will interpret the contracts if Mt.Gox goes under.  But usually his interpretations are profitable for the site (and S.MPOE).  Waiting till closer to OpEx to see how this plays out...

as bad as it is for the option writer right now, at least gox being dead will not count against the weighted price at settlement.

Presumably.  I haven't heard an official verdict on how they will be settled.  Looks like he is only down 8-9000BTC at the moment, I guess it could be worse :-P

Would be so epic if he came out with a positive ROI on this trade. The stuff of legends.

It might actually happen too...  Or it might be refunded at purchase price.


These two statements are in conflict with each other. Bitcoincharts is still quoting, but Mt Gox catastrophically closed.

well, a 24 hr average of zero and volume of zero should not move any averages.

funny thing would be if mtgox did what some originally anticipated in fixing the withdraw problem and letting withdraw go through, BTC may have shot up a lot (the old mtgox premium).

The numbers are in.  Monster month for MPEx.

Operational results, MPOE
Overall trade 26`208 contracts, of which -1`554 +0 Call, -4 +24`650 Put.
Revenue : 19`769.10256165 BTC, of which :

contracts sold : 34.20256165 BTC
contracts exercised : 19`734.90000000 BTC
Expenditure : 11`800.61618062 BTC, of which :

contracts bought : 10`594.58980562 BTC
contracts exercised : 0.0 BTC
capital expenses : 1`205.526375 BTC (10`715.79 × 11.25%)
exceptional settlement : 0.50000000 BTCi
Profit : 7`968.98638098 BTC

Operational results, MPEx
Revenue : 139.62178334 BTC, of which :
Revenue from sales fee : 69.62178334 BTC (Total trade : 34`810.89167308 BTC)
Revenue from new accounts : 70 BTC
Expenditure : 8.262335 BTC, of which :

PR, 2.875 BTC.
Advertising, 0.1 BTCii
Tech, 5.287335 BTCiii
Profit : 131.35944834 BTC

Shareholders table
Total shares : 1`000`000`000, of which :
Mircea Popescu, 838`159`714 shares,
Third parties 161`840`286 shares.
Total dividend : 8`100.34582932 BTC.

Uh Oh... http://trilema.com/2014/mpoe-february-2014-statement/


Looks like the S.MPOE price is about to TANK.  Without the options bot, the average monthly revenue will probably go down about 90%!