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There can be no options since volatility is impossibly high.. lets take an example. You buy an $850 put with the spot price at $850 and it expiries in 6 months.
by dia80 13y ago
There can be no options since volatility is impossibly high.. lets take an example. You buy an $850 put with the spot price at $850 and it expiries in 6 months. 90 day realized volatility has been 130% annualized so the black-scholes formula says i have to charge you $300 usd for that option. You make money if BTC is $550 or below in 6 months. Your upside is $550 if it goes to 0 and down side is $300 usd. Still want to trade?
- tedunangst 13y agoI suspect you could find people willing to sell that put for less than $300. If there's no action at $300, somebody will step in at $200, or $100, or $10. Remember that Bitcoin can only go up, so there's no risk. It's like free money, you just have to be willing to accept a little less free money than the rest of market to get yours.
- hasker 13y agoblack-scholes also assumes the ability to dynamically, instantaneously hedge with very low transaction costs I recall. The market-maker has to charge even more to recover costs in this case since they cannot dynamically hedge and bid-offer tight nor is the market deep.
- patio11 13y agoMy sketch of the math back when BTC was $1,000 was that BS had a 1 year put at a $100 strike valued at about a nickel. At that price, assuming availability in quantity and acceptable levels of risk caused by factors other than BTC being worth more than $100 in a year, I'd be buying.