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Author Topic: Options trading  (Read 2693 times)
sidd
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January 26, 2011, 04:08:00 PM
 #1

I'm financing some mining and would like some insurance against the value of bitcoins dropping considerably.

I'm looking to make either:
a) An American style long put, strike rate of 1 BTC = 0.2 USD, premium in either currency either in advance or at expiry.
b) A European style short call, strike rate of 1 BTC = 0.5 USD, premium in BTC in advance, or USD at any time.

In each case the expiration date will be 6 months and the quantity any part or parts up to 7500 BTC.

Is anyone able to offer a competitive premium for these types of option? Is there a way of conducting these trades so as to minimize counterparty risk?


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TTBit
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January 26, 2011, 04:46:44 PM
 #2

I'm financing some mining and would like some insurance against the value of bitcoins dropping considerably.

I'm looking to make either:
a) An American style long put, strike rate of 1 BTC = 0.2 USD, premium in either currency either in advance or at expiry.
b) A European style short call, strike rate of 1 BTC = 0.5 USD, premium in BTC in advance, or USD at any time.

In each case the expiration date will be 6 months and the quantity any part or parts up to 7500 BTC.

Is anyone able to offer a competitive premium for these types of option? Is there a way of conducting these trades so as to minimize counterparty risk?




with current price ~42c, my market for expiration 180 days:

20 cent put: $0.0090 bid / $0.0200 offer
50 cent call: $0.1700 bid / $0.2600 offer

So we're on the same page..
for $150 (you pay me), I'll buy 7500 coins from you at 20c each whenever you wish
I'll give you $1275 if you give me the option to buy 7500 coins from you at 0.50 in 180 days.

The short call is tricky, I have no way of knowing you can deliver 7500 coins, especially if they are $5 each.

good judgment comes from experience, and experience comes from bad judgment
Stephen Gornick
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January 26, 2011, 06:16:04 PM
 #3

Using an escrow is one method to lessen the risk should you happen to be concerned that at some time in the future you might not be able to execute your option.  [edited]

Call Options using ClearCoin Escrow
  http://wiki.bitcoin-otc.com/wiki/Option_orders

mpkomara
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January 26, 2011, 06:19:17 PM
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with current price ~42c, my market for expiration 180 days:

20 cent put: $0.0090 bid / $0.0200 offer
50 cent call: $0.1700 bid / $0.2600 offer

So we're on the same page..
for $150 (you pay me), I'll buy 7500 coins from you at 20c each whenever you wish
I'll give you $1275 if you give me the option to buy 7500 coins from you at 0.50 in 180 days.

The short call is tricky, I have no way of knowing you can deliver 7500 coins, especially if they are $5 each.


TTBit--

I will sell you 7500 of your call, buy 7500 of your put and buy 5100 bitcoins at a price of .42 USD/BTC as a package. If you don't want to do the 5100 bitcoins, that's fine too.  let me know what you want.
sidd
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January 26, 2011, 06:30:00 PM
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@TTBit:
 sounds reasonable. What about a 30c put?

@sgornik:
I don't see how an escrow can help much here. For the call, I can't put my 7500 BTC in escrow because I haven't mined it yet. For the put, he would have to keep $1500 in escrow for 6 months just to collect $150, which is barely worth it.
TTBit
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January 26, 2011, 06:47:47 PM
 #6



with current price ~42c, my market for expiration 180 days:

20 cent put: $0.0090 bid / $0.0200 offer
50 cent call: $0.1700 bid / $0.2600 offer

So we're on the same page..
for $150 (you pay me), I'll buy 7500 coins from you at 20c each whenever you wish
I'll give you $1275 if you give me the option to buy 7500 coins from you at 0.50 in 180 days.

The short call is tricky, I have no way of knowing you can deliver 7500 coins, especially if they are $5 each.


TTBit--

I will sell you your call, buy your put and buy 5100 bitcoins at a price of .42 USD/BTC as a package.

So, total package is:

I sell you 5100 coins at 42c each (+$2142 USD)
I sell you a 20c put on 7500 coins (+$150 USD)
I buy 7500 50c calls at 17c each (-$1275 USD)

* Net credit to me of $1017
* You get 5100 coins up front
* I have the right (not obligation) to buy 7500 coins from you at 50c each on 7/31/2011
* You have the right to sell me 7500 coins at 20c ($1500) whenever you wish, expires 7/31/2011

Would you agree to hold the 7500 coins at BitcoinSportsBook, or a wallet of my choosing? (I would put up the 5100, you 2400). Block explorer can verify totals.

You send me a check in the amount of $1017.
I send you a check for $3750 on 7/31/2011 if I want the coins.
I send you a check for $1500 whenever you wish for those 7500 coins (expire 7/31/2011).


good judgment comes from experience, and experience comes from bad judgment
ribuck
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January 26, 2011, 06:50:42 PM
 #7

For the call, I can't put my 7500 BTC in escrow because I haven't mined it yet.
So you need to find someone against whom you can hedge your mining risk. The counterparty gets the first 'X' bitcoins that your rig mines, in return for delivering 7500 minus 'Y' bitcoins at the end of six months, where 'Y' is the number of bitcoins that your rig mined.

That needs new terminology. I would call it a "Bitcoin style difficulty hedge" Smiley

If you let us know the hashing rate of your mining rig, we can consider whether we are interested.

On the other hand, you could throw caution to the wind and mine away, keeping everything you make without incurring any hedging costs.
mpkomara
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January 26, 2011, 07:16:41 PM
 #8

TTBit-
pm me with bank details and i'll do the trade.  clearcoin is my escrow/clearer of choice.
TTBit
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January 26, 2011, 07:23:45 PM
 #9

@TTBit:
 sounds reasonable. What about a 30c put?

@sgornik:
I don't see how an escrow can help much here. For the call, I can't put my 7500 BTC in escrow because I haven't mined it yet. For the put, he would have to keep $1500 in escrow for 6 months just to collect $150, which is barely worth it.

30 cent put
$0.0270 bid x7500
$0.0470 offer x7500


good judgment comes from experience, and experience comes from bad judgment
sidd
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January 27, 2011, 08:02:46 PM
 #10

I've set up 1 Ghash/sec mining and am now offering discount call options in limited quantity. My expected return from selling these is negative, but it improves my profit distribution from the mining. Anyone who's feeling bullish should be interested.

All payments in BTC only

Current rate for 30 day at-the-money (0.45) is 0.38, any strike rate and period up to 6 months available.

You pay 0.38 BTC, after 30 days I pay (1 - strike price/expiry price) BTC
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