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A call option also means someones else took the other side of this trade. Who sold $1 million dollars worth of December 2018 Bitcoin $50K call options? Also th

A call option also means someones else took the other side of this trade. Who sold $1 million dollars worth of December 2018 Bitcoin $50K call options? Also there's a back of the envelope implied volatility for Bitcoin here: on a $3k call option premium 12 months out (so breakeven on this "bet" is actually $53,000) Bitcoin implied volatility of around 120%? Not that equity option pricing model theories apply to Bitcoin, or even work as expected on equities for that matter, but it's interesting to see an implied volatility number regardless. Looks like Delta less than 10. With Futures already 3 months out at $17,000 it would seem like whoever sold this call option for $1 million could hedge (not perfectly hedge) the trade for less than $1 million. Oddly enough, both the buyer and the seller could end up profiting on this option trade. I agree this article is very bad, it feels like a paid PR article advertising for the trading company not actual news.

ComputerGuru 9y ago
> I agree this article is very bad, it feels like a paid PR article advertising for the trading company not actual news. The number of times LedgerX was mentioned made me suspect that immediately.
- BonesJustice 9y ago
  Their volume is abysmal. Nobody trades there. They know they're missing out, and they know they're running out of time before the Bitcoin craze is all over. They'd like to make some money before that happens.
totalZero 9y ago
Someone who's already long a ton of bitcoin could write those calls without adding any risk, collecting a little bit of yield and sacrificing only the extremely-far-out-of-the-money potential upside of $50k+ on his long bitcoin. The implied volatility at which this option traded is pretty irrelevant for helping us understand the option market as a whole, since it's so far out of the money. We don't have much information about what the upside skew would look like. And due to vanna, that delta calculated off that implied volatility is irrelevant too.
- d--b 9y ago
  Given the realized vol of bitcoin, 50k is not very far out of the money. Bitcoin doubled between end of November and mid December. And it's 20 times the value it was a year ago...
  - deleted 9y ago
    [deleted]
- hxta98596 9y ago
  You're right. And I agree, the missing info about the contracts and the overall derivatives market here plus the expiration and strike being so far away makes calculating IV or delta or vega or convexity or well calculating anything pretty irrelevant and has little to zero practical use. Plus we are talking about Bitcoin! so none of this is relevant. The old option theory bullshit has even less rigor beyond fun mental exercise. I still think it's interesting and gota start somewhere, and we'll see how things develop in this market. I did try to qualify in my comment writing something how calculation not really applicable to Bitcoin and doesn't even work on equities properly. But again you're right and I should have worded my comment differently, probably a bad lazy old habit to even use weird finance terms on non-finance forum like HackNews, so maybe could have said something like 'wow interesting to see someone paid 20% of the current price for an option with a strike that has bitcoin gaining +200% in the next 12 months'? I would guess this is some sort of covered call as you suggest. It's only 275 bitcoins and a 20% premium on the spot price seems like a decent yield for so far out the money. I'm not a bitcoin trader but it's my understanding from what I've read there was no short side price discovery until very recently when derivatives started trading so volatility has no historical nor frame of reference. Bitcoin options could be super inexpensive deal right now or way overpriced there's no basis to say either way but there does seem to be enough inefficiency across various markets for arbitrage if someone wants to make the effort.
  - FabHK 9y ago
    > The old option theory bullshit has even less rigor beyond fun mental exercise. Well, it actually tells you how to hedge and thus replicate the option. That's quite valuable in practice (even if it needs modification from pure theory), despite Taleb's rants.

ComputerGuru 9y ago

> I agree this article is very bad, it feels like a paid PR article advertising for the trading company not actual news. The number of times LedgerX was mentioned made me suspect that immediately.

BonesJustice 9y ago
Their volume is abysmal. Nobody trades there. They know they're missing out, and they know they're running out of time before the Bitcoin craze is all over. They'd like to make some money before that happens.

totalZero 9y ago

Someone who's already long a ton of bitcoin could write those calls without adding any risk, collecting a little bit of yield and sacrificing only the extremely-far-out-of-the-money potential upside of $50k+ on his long bitcoin. The implied volatility at which this option traded is pretty irrelevant for helping us understand the option market as a whole, since it's so far out of the money. We don't have much information about what the upside skew would look like. And due to vanna, that delta calculated off that implied volatility is irrelevant too.

d--b 9y ago
Given the realized vol of bitcoin, 50k is not very far out of the money. Bitcoin doubled between end of November and mid December. And it's 20 times the value it was a year ago...
- deleted 9y ago
  [deleted]
hxta98596 9y ago
You're right. And I agree, the missing info about the contracts and the overall derivatives market here plus the expiration and strike being so far away makes calculating IV or delta or vega or convexity or well calculating anything pretty irrelevant and has little to zero practical use. Plus we are talking about Bitcoin! so none of this is relevant. The old option theory bullshit has even less rigor beyond fun mental exercise. I still think it's interesting and gota start somewhere, and we'll see how things develop in this market. I did try to qualify in my comment writing something how calculation not really applicable to Bitcoin and doesn't even work on equities properly. But again you're right and I should have worded my comment differently, probably a bad lazy old habit to even use weird finance terms on non-finance forum like HackNews, so maybe could have said something like 'wow interesting to see someone paid 20% of the current price for an option with a strike that has bitcoin gaining +200% in the next 12 months'? I would guess this is some sort of covered call as you suggest. It's only 275 bitcoins and a 20% premium on the spot price seems like a decent yield for so far out the money. I'm not a bitcoin trader but it's my understanding from what I've read there was no short side price discovery until very recently when derivatives started trading so volatility has no historical nor frame of reference. Bitcoin options could be super inexpensive deal right now or way overpriced there's no basis to say either way but there does seem to be enough inefficiency across various markets for arbitrage if someone wants to make the effort.
- FabHK 9y ago
  > The old option theory bullshit has even less rigor beyond fun mental exercise. Well, it actually tells you how to hedge and thus replicate the option. That's quite valuable in practice (even if it needs modification from pure theory), despite Taleb's rants.