Derivatives exchanges currently sell $100,000–$300,000 Bitcoin call options, but are professional traders willing to bite?
The open interest on Bitcoin (BTC) December 31 call options between $100,000 and $300,000 crossed an impressive 6,700 contracts, worth $385 million at the time of writing. This derivatives offer the buyer the right to purchase Bitcoin at a predetermined amount, while the seller is bound to respect the price.
This might seem to be a perfect way to exploit a long position, but it comes at a cost, which is generally very high. The customer pays an initial fee (premium) to the call option vendor for this right. The $100,000 call option, for example, is currently trading at 0.164 BTC, or $9,480.
As a result, option traders rarely purchase these options on their own. Longer-term derivatives typically require several strike prices or calendar months.
An real exchange organised by Paradigm, an institutional investor-focused over-the-counter trading desk, is depicted above. A total of 37 BTC December $100,000 and $140,000 calls were exchanged between two of their clients in this deal.
Unfortunately, no one knows the hand the market maker was on, however given the uncertainties involved, one can believe the investor was aiming for a bullish place.
This customer charged a $138,000 upfront fee by selling the $140,000 call option and concurrently purchasing the more lucrative $100,000 call option. This number reflects their maximum loss, which occurs on December 31 at a price of $100,000.
The red line in the above simulation represents the nett result at expiry in BTC. In the meanwhile, the green line represents the potential nett return on June 30.
As a result, for this customer to recoup their investment, Bitcoin must sell at $65,600 or higher on June 30. This is slightly less than the $107,150 needed for a break-even if the buyer of this “call spread” strategy keeps until the December expiry.
This is due to the $100,000 call option price appreciation being greater than the $140,000 call option price appreciation. While a Bitcoin price spike to $65,600 is significant for a $100,000 option with six months remaining, it is less significant for a $140,000 option.
Trading ultra-bullish call options makes for a plethora of tactics, with the customer not having to wait until the expiry date to lock in money. As a result, if Bitcoin rises by 30% in the next few months, it makes sense for this call spread holder to unwind their spot.
As seen in the preceding example, if Bitcoin hits $75,000 in June, the buyer will close the place and lock in a $23,000 nett profit.
Although it’s exciting to see exchanges selling large $100,000–$300,000 expiries, these numbers can not be viewed as accurate pricing forecasts based on research.
These instruments are used by professional traders to execute bullish but regulated trading strategies.
182 Interactions, 4 today