Understand settlement of BTC-6JAN23-14000-C

[q0987]

Hello all,

I have difficulties to understand how bitcoin settlement works.

May someone here help me clear the confusion?

For example,
BTC-6JAN23-14000-C

Bitcoin Option:
Expiry: 2023/01/06
Strike Price: 14000
CallOption

Here is what I was told "the crypto option /BTC is considered a futures contract".

What I have found is that BTC-6JAN23-14000-C can be settled before expiry.
For example,
I can see BTC-6JAN23-14000-C is settled today (2022-12-28T02:00 CST) even though the expiry is 2023/01/06.

Question> When I see BTC-6JAN23-14000-C is settled, what does it really mean?

Thank you

[1714734580]

1714734580

[BitMaxz]

It's a settlement date which means it is a date when the payment is final.
based on what I understand you as a buyer must pay it today with the target price and expiry date and after that, your deal with a seller is settled and wait for execution if the price of bitcoin future touches the strike price before the expiry it will execute and the BTC will deliver to you. It is likely a contract where you can only buy BTC at the target price within this month if the price reaches the target price it will trigger and you will receive the BTC.

To understand it better check this link below

- https://www.investopedia.com/terms/s/settlementdate.asp

[jackg]

They're derivatives of the original assets which means they represent the asset but are traded independently (which is why the prices often deviate).

If people are bullish, the instrument/derivative will rise at a faster rate than bitcoin, if people are bearish, it'll fall at a faster rate. The two prices generally converge towards the end of the contract (the expiry date).

You can have settlements before the expiry date either because you've liquidated (you took leverage/a loan to invest more) or you've enacted one (sold the contract yourself, had a take profit or stop loss triggered).

[q0987]

It's a settlement date which means it is a date when the payment is final.
based on what I understand you as a buyer must pay it today with the target price and expiry date and after that, your deal with a seller is settled and wait for execution if the price of bitcoin future touches the strike price before the expiry it will execute and the BTC will deliver to you. It is likely a contract where you can only buy BTC at the target price within this month if the price reaches the target price it will trigger and you will receive the BTC.

To understand it better check this link below

- https://www.investopedia.com/terms/s/settlementdate.asp

In my case, all crypto options are European style, which means they can only be exercised at expiry.
Also, I understand how equity option settlement works(i.e. T+2).

BTC-6JAN23-14000-C is not expired yet. Why do I see the settled message for this instrument?
I assume this has nothing to do with the trade of this instrument because I will receive a different kind of message which indicates a trade.

In other words, what really happen when a not-expired crypto option is seen settled?

Thank you

[Stedsm]

Hey, based on what I learnt from the CM of Deribit,
"Options have unrealized PNL daily, this is what is being settled daily. Ideally, can you DM me and send me a screenshot of what you're looking at so I can explain with context?"

So, I'd like to ask you whether it's a derivative on Deribit?
If yes, please DM @MrJozza on telegram and even tell him that you were referred to him by me (Stedsm) so that he'll understand the matter quickly. You can verify him by going to https://t.me/deribit
However, if it's not Deribit, I'd suggest you to ask this directly in your respective futures' portal's telegram or send them an email to understand it better.

[q0987]

Hello Stedsm,

Yes, the question is related to Deribit crypto options.
I have sent messages based on your suggestion.

Thank you very much!

[adaseb]

When it comes to perpetual futures which are swaps they never settle. Those monthly and quarterly futures settle at a specific time when it expires.

Options are very similar however it’s possible for an option to settle earlier if it is called. Especially since the 14000 call is being bought as in the money.

So Bitcoin can rally to like $20K and a week before expiry the owner of that call can exercise the option and it would settle earlier. However this only happens if you sell or wrote the call option. Won’t happen if you just buy it. Same with puts.

[q0987]

When it comes to perpetual futures which are swaps they never settle. Those monthly and quarterly futures settle at a specific time when it expires.

Options are very similar however it’s possible for an option to settle earlier if it is called. Especially since the 14000 call is being bought as in the money.

So Bitcoin can rally to like $20K and a week before expiry the owner of that call can exercise the option and it would settle earlier. However this only happens if you sell or wrote the call option. Won’t happen if you just buy it. Same with puts.

Deribit Options are European style. So I think the owner of the option cannot exercise the option before expiry.

Thank you