[WTB] [FILLED] 1000 BTC Contract for difference (I'm taking the short position)

[Meni Rosenfeld]

I need to hedge against a decrease in the price of BTC. With Bitcoinica down and kronos.io not yet finished, I would like to do this with a CFD. If you want to take a long position you can do this deal with me.

The deal will be done only with reputable members, without any collateral offered by either party. No money will be transferred when the agreement starts, and only bitcoins (not USD) will be sent when it ends.

How this works: When we start the agreement, we record the BTC exchange rate $O. When either party wishes to settle the contract, we look at the current exchange rate $C. I will then pay 1000*(1-O/C) BTC (equivalent to 1000*(C-O) USD, which is what you would have gained by buying 1000 BTC and then selling them). If this is negative you pay me 1000*(O/C-1) BTC.

To avoid confusion about the exact time in which the exchange rate is determined, I suggest that we use the Mt. Gox opening rate (as available from bitcoincharts.com) of the day after we decide to start/end the contract.

Duration: The contract will last until one party decides to settle it, which it can do with 2 days notice. This should be enough time to prepare the settlement payment, but a leniency of a few days in actual payment will be allowed. The minimum duration is 2 weeks and the contract can't be ended before this time elapses. These terms are negotiable.

Contract refreshment: To avoid either party being in too much debt to the other, the contract should be occasionally refreshed (for example, whenever the exchange rate moves by $1). To do this, I will pay 1000*(1-O/M) BTC where $M is the current exchange rate, and then M will be assigned as the new value for O. (The exact value of M isn't as critical as the initial O and the final C).

[Dalkore]

Looks like someone has been doing their financial reading.   I like this, if I had the risk capital to spare, I would actually take you up on this contract.   Love seeing organic financial innovation on here, its a beautiful thing.

[riX]

I'm interested, do I qualify as reputable?
What time frame did you have in mind?

[PatrickHarnett]

It's more like a futures contract, but CFD will do as a term. 

Are you proposing an end time or is it purely exercising the option at any stage (and from either side)?

[brendio]

I'm interested, do I qualify as reputable?
What time frame did you have in mind?

I can vouch for riX, if my reputability adds anything to his.

Also possibly interested. So, either side can give (up to) 24 h notice to close the position? What would be the timeframe for delivery? Presumably, you have bitcoin to back up your position, but the long side may need to convert their fiat to bitcoin in the case the price goes down.

[Meni Rosenfeld]

I got a few offers while sleeping. I'm currently negotiating with the first one.

I'm interested, do I qualify as reputable?
What time frame did you have in mind?

With a forum account twice as old as mine and Brendio's reference, sure. But for now it looks like you were beat to it.

I've added some info about timing, it will be flexible with a minimum of 2 weeks, I expect to keep it for a few months.

It's more like a futures contract, but CFD will do as a term.  

It can be seen functionally as a futures contract, but to me CFD seems much more descriptive - we agree to pay based on the difference in the BTC exchange rate.

Are you proposing an end time or is it purely exercising the option at any stage (and from either side)?

The end time isn't specified in advance, either party can request exercising it when it wants (up to some conditions).

Also possibly interested. So, either side can give (up to) 24 h notice to close the position? What would be the timeframe for delivery? Presumably, you have bitcoin to back up your position, but the long side may need to convert their fiat to bitcoin in the case the price goes down.

I've added some timing info. I have enough available bitcoins to pay for the difference, especially if we occasionally refresh the contract as I described in an edit (so I don't end up having to pay 500 BTC at once if the price climbs to $10). Presumably the counterparty will also have some bitcoins lying around, but if he needs more time to prepare the payment that can be negotiated.

[exahash]

It's more like a futures contract, but CFD will do as a term. 

Are you proposing an end time or is it purely exercising the option at any stage (and from either side)?

You do know a CFD is a real thing, right?  http://en.wikipedia.org/wiki/Contract_for_difference

[Meni Rosenfeld]

Deal (for 1000 BTC) was completed with teek, with O=5.432.

[PatrickHarnett]

It's more like a futures contract, but CFD will do as a term. 

Are you proposing an end time or is it purely exercising the option at any stage (and from either side)?

You do know a CFD is a real thing, right?  http://en.wikipedia.org/wiki/Contract_for_difference

Yes.  I used them as a risk management tool for electricity purchasing/sales.  They were the normal instrument in my portfolio rather than futures contracts.  It was simply that the way Meni initially described it, although it was a difference calculation, it wasn't for a set term and still relied on a future price (more like an option actually).

Also, without knowing what they are (CFDs), I wouldn't have been granted a licence for trading in the Australian market.  In the NZ market we didn't need to be licensed, but we were trading as principal so the securities regulations applied differently.  Been doing them for two decades now, but less in recent years.  Still makes bitcoin look nice and flat with limited volatility.

[Meni Rosenfeld]

It was simply that the way Meni initially described it, although it was a difference calculation, it wasn't for a set term and still relied on a future price (more like an option actually).

Don't future contracts have a set term? And don't CFDs rely on future price?

I'm not sure it's equivalent to options. It could seem at first similar to the two parties exchanging options, put and call respectively, at the current price; but with such an arrangement, each party reserves the right to exercise its own option independently, while in the CFD, one option expires when the other is exercised (and a party can force the other one to exercise its option).

[PatrickHarnett]

It was simply that the way Meni initially described it, although it was a difference calculation, it wasn't for a set term and still relied on a future price (more like an option actually).

Don't future contracts have a set term? And don't CFDs rely on future price?

I'm not sure it's equivalent to options. It could seem at first similar to the two parties exchanging options, put and call respectively, at the current price; but with such an arrangement, each party reserves the right to exercise its own option independently, while in the CFD, one option expires when the other is exercised (and a party can force the other one to exercise its option).

My observation and interest was that there wasn't a fixed term.  The optionality is around the time of exercise, rather than saying "on 1 July" and I thought that would introduce an interesting tension into the contract.

Most CFDs simply settle at expiry, and for simple puts and calls, depending on the wording they can either be auto-exercised or manually exercised.

Anyway, as mentioned, watching with interest

[Dalkore]

Deal (for 1000 BTC) was completed with teek, with O=5.432.

Congratulations and thank you for even being nice enough to tell us the price so we can see what it was pegged at.   

[Meni Rosenfeld]

Deal (for 1000 BTC) was completed with teek, with O=5.432.

Contract price was updated to 7.24699.

Update Aug 3 2012: Price refreshed to 10.5300.

[nimda]

Deal (for 1000 BTC) was completed with teek, with O=5.432.

Contract price was updated to 7.24699.

Update Aug 3 2012: Price refreshed to 10.5300.

Damn, teek is doing well

[Meni Rosenfeld]

On Aug 28 2012 the contract with teek was concluded with a final price of 10.89.