Can somebody explain me why there is open risk free arbitrage on BUZ2?
If I sell 100 BUZ2 @ 14 and buy 100 BTC @ 12.83 I will get 117 USD risk free profit.
A discussion on this:
Why are bitcoins in december better than bitcoins today? (ICBIT)
I thought the answer to that was due to the maximum price change specified for BUZ2;
"Maximum price change within one trading session: 10% in each direction relative to the close price of the last trading session"
But I am missing a piece of information to answer that. I don't know if the maximum change in clearing price from one day to the next is 10%, or does that 10% just reflect the price as far as what is used simply for computing margin variance?
So, using your example,
OCT-05-2012 - TRADE: BUY 1 BTC at $12.83
OCT-05-2012 - TRADE: SELL 1 BUZ2 at $14
Then let's say that was the last trade of BUZ2 on that day and thus the clearing price would also be $14, and as a result there is no margin variance paid.
Then let's say on OCT-06-2012 a crash happens, the BTC/USD drops nearly $4 in a day, $12.83 to $9.
So the margin variance paid to you is based on a maximum of 10%, so from the $14 then the margin variance paid is $1.40.
OCT-06-2012 - BTC/USD $9, Last BUZ2 trade $10. Margin variance +$1.40 (as prior clearing was $14, but max 10%)
But normally the clearing price uses the last trade, and let's say that last trade occurred at $10.00. So does that become the "prior clearing price" used for calculating the margin variance on the next day?
So then let's say the BTC/USD exchange rate rises, $1 a day for the next five days, and the BUZ2 "last trade" rises exactly at the same $1 a day rate.
OCT-07-2012 - BTC/USD $10, Last BUZ2 trade $11. Margin variance -$1 (as prior clearing was $10)
OCT-08-2012 - BTC/USD $11, Last BUZ2 trade $12. Margin variance -$1 (as prior clearing was $11)
OCT-09-2012 - BTC/USD $12, Last BUZ2 trade $13. Margin variance -$1 (as prior clearing was $12)
OCT-10--2012 - BTC/USD $13, Last BUZ2 trade $14. Margin variance -$1 (as prior clearing was $13)
OCT-11--2012 - BTC/USD $14, Last BUZ2 trade $15. Margin variance -$1 (as prior clearing was $14)
Then, for simplicity sake, let's say on OCT-12, BUZ2 trades exactly at the BTC/USD exchange rate.
OCT-12-2012 - BTC/USD $14, Last BUZ2 trade $14. Margin variance +$1 (as prior clearing was $15)
And then nothing happens through December 15th ... the BTC/USD stays at $14, and BUZ2 has no more activity after October 12th.
DEC-15-2012 - TRADE: SELL 1 BTC at $14
Now let's review:
So you bought 1 BTC at $12.83 and sold it for $14, so you gained $1.17.
You sold 100 BUZ2 at $14, and got the following margin variance adjustments:
You lost more on the BUZ2 ($2.60 loss) than you earned from the gain on the BTC ($1.17 gain). Your net loss on this set of transactions was $1.43.
Now, this is with my possibly flawed understanding of what happens with the clearing price when a change of more than 10% occurs. If the clearing price for October 6th should actually have been the $12.60, and not the $10 from the last BUZ2 trade, then my whole analysis is wrong, and you are exactly right at selling BUZ2 at $14 and buying BTC at $12.83 incurs no risk.