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Bitcoin Options Purchased for $1 Million Will Soon Be Worthless (bloomberg.com)

Posted by EditorDavid on from the buy-high-sell-low dept.

"The biggest-ever bet on Bitcoin options is about to expire worthless," reports Bloomberg: Purchased for almost $1 million on LedgerX's trading platform just days after Bitcoin peaked a year ago, the call options have a strike price of $50,000 and an expiry date of Dec. 28, 2018. For the contracts to retain any value at expiry, Bitcoin would need to rally more than 1,400 percent.

The options' almost certain wipeout is a less-than-ideal outcome for the buyer, but it may not be quite as bad as it seems. Ari Paul, a cryptocurrency fund manager at BlockTower Capital, has indicated that he bought the options while simultaneously selling some of his fund's Bitcoin holdings... He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable.

10 of 59 comments (clear)

  1. No more Bitcoin articles please by bkmoore · · Score: 5, Insightful

    Please /. no more articles about Bitcoin market movements. This has nothing to do with science, technology, or news for nerds that matters. No matter where an asset moves, up, down, sideways, - unexercised options are always worthless.

    1. Re:No more Bitcoin articles please by YttriumOxide · · Score: 3, Insightful

      While I agree that stories about bitcoin market movements aren't appropriate for slashdot, real news about bitcoin (the technology) always should be.

      If you disagree, tell me how "a game theory based system for ensuring trust by writing entries to a global decentralised ledger built around a proof of work system that can be modelled more effectively using equations more at home with a physicist than an economist or computer scientist (specifically those regarding entropy and information transmission/density)" isn't "news for nerds".

      --
      My book about LSD and Self-Discovery
      Also on facebook as: DroppingAcidDaleBewan
  2. Gamblers... by ChatHuant · · Score: 3, Funny

    He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable.

    I noticed that when you ask consistently losing gamblers how they're doing, they'll very often say they're about even, or maybe a little up...

    1. Re:Gamblers... by ediron2 · · Score: 3, Informative

      (sighs... meh, might as well at least fire off a couple rounds, even if I'm not willing to die on this hill):
      If a traded commodity is at 17000, and you're not sure if it will climb or fall, numerous contracts are possible.
      This guy sold X in Bitcoin (BTC), and bought Y in options.
      If BTC values grew above some amount, Y options would go 'kaching' far in excess of the 'unrealized gain' of X bitcoin he sold early.
      If BTC shrank below some amount, his X sold at 17000 look brilliant, and his profit on them is far in excess of the loss of his options.
      And if BTC sat idle at that position, he'd lose the $1M, not feel clever for cashing out early, not feel clever for the option, but be armed with new knowledge of BTC having endured umpteen months of relative stability.... yeah, that was never going to happen.

      And let's face it, if he sold BTC anywhere from 8000 to 17000 and felt the urge to buy $1M of options, he likely cashed out more than a thousand BTC. Several million in value. Since options contracts cost pennies on the dollar, this $1M contract was likely struck so he'd have tens of millions of profit waiting if BTC had doubled again.

      Bracketing like this is an everyday thing for hedge funds. A multinational agricultural company I worked in used to do so each year on fuel prices, so they knew their price of tractor and transport fuel would be between $1.75 and $2.00 per gallon. Airlines buy options when they see possibilities of fuel price shifts. Speculators in currencies set up options that either pay on high volatility, or limit their profit/loss to a narrow percentage. Quants do trades based on trends they think only they see, and sometimes get a bracket in case they're wrong.

  3. It's called a hedge. by Anonymous Coward · · Score: 5, Informative

    Nothing to see here. Options are often bought to guard an opposite investment. If the asset moves in the unexpected direction, the option limits the damage. In this case the asset moved in the expected direction and the option wasn't exercised.

  4. This is trivia, not news by perpenso · · Score: 2

    An article about a single options trade? Really? Has slashdot become a trivia site?

    I get the interest in cryptocurrency. The field of full of nerd related news and interesting tech, psychology and social impact. But this, its just: here's the biggest bet gone wrong. Trivia.

  5. LOL by Hallux-F-Sinister · · Score: 2

    "Buy high, sell low, that's how you do it... that's... oh shit! Wait... we did it BACKWARDS! NOOOOOoooo!"

    As Rick "Gov. Goodhair" Perry famously put it, "oops."

    --
    Our reign has gone on long enough. Indeed. Summon the meteors.
  6. Re: Were items like this the real reason for the d by ShanghaiBill · · Score: 2

    Sell millions of dollars worth of BTC options and then depress the price to ensure they're worthless?

    How does one "depress the price" without losing money?

    The collective value of all bitcoins declined by $200B in the past year.

    Are you seriously claiming that someone dumped enough bitcoins to depress the market by $200B in order to make $0.001B?

    The Flat Earth Society has a more plausible theory than that.

  7. Re:logical fallacy by sheetsda · · Score: 5, Informative

    Speaking as someone who does a bit of trading, this actually makes complete sense and was a prudent strategy. There exist quite a few strategies in trading that require purchasing options you expect to expire worthless and I can explain what we're seeing here without even getting into anything exotic:

    He stated explicitly that he sold bitcoin at the same point as purchasing these options. That he sold means he was expecting the price to drop. One move you can make to cash when you expect a price drop is to borrow shares, sell them, and then replace them after the price drops. This called selling short (I'm actually holding such a position in my portfolio right now). If you're wrong when you sell short, you cash out at a loss - and if bitcoin had kept skyrocketing that could have been a devastating loss - potentially unlimited, in fact. If you buy call options, however, your loss is capped because replacing the shares you sold cannot cost you more than the strike price.

  8. Re:Were items like this the real reason for the dr by NicBenjamin · · Score: 4, Informative

    It's possible that someone is gaming the market unethically, but this is an example of how you game the market ethically.

    The dude sold a bunch of BTC around $20k to lock in the gains, and then because he did not want to be out-of-luck if it kept going up he bought the option to buy back in at $20k. If the price is less then $20k the option is worthless, so the person who is on the other side of the contract got a free $50k. If BTC continued to increase that person could be in trouble.

    It's called "hedging," and it is clearly gaming the system, but the only people who can be screwed are the people involved in the actual contract. Pretty much the only way it could affect the market is if the price went above that $20k strike price and the dude called the option by forcing the other side to sell BTC to him at $20k, because they'd have to get those BTC somewhere.