An option contract with a strike price of $100,000 may seem absurd, but it is not. Both buyers and sellers of this contract can achieve profit and risk control through specific strategies.
Deribit launched call options with a strike price of up to $100,000 for delivery on September 24, 2021 on December 17, 2020. As of December 21, that is, 5 days after the launch, the cumulative transaction volume has reached 253,000 US dollars, of which the largest single transaction has reached 81.6 contracts (about 80,600 US dollars).
This largest single transaction means that the buyer of the transaction spent about $80,000 and purchased the right to purchase 81.6 bitcoins at a unit price of $100,000 on September 24, 2021. Of course, the buyer can also sell the right in the middle, or choose to give up the right in the future.
An option contract with such a high delivery price is called an “out-of-the-money”. Generally speaking, trading such a contract is not a rational investor’s choice. However, TokenInsight analyzed the relevant elements and transaction records of the contract and found that:
·Small transactions with less than 5 contracts dominate the transaction, but large transactions contribute most of the transaction volume;
·The $100,000 contract is well received by the market, which is higher than many contracts for delivery at the same time;
·Theoretically, most investors who purchase the contract can get profits with limited losses.
As of 12:00 on December 21 (UTC+8), 61 transactions have been completed, with a total transaction volume of 253,000 US dollars, and a maximum single transaction value of 81.6 contracts (about 80,600 US dollars)
According to Deribit’s calculation method for the number of contracts (it can be a decimal, starting at 0.1), TokenInsight divides each transaction into four levels: 0 to 1, 1 to 5, 5 to 10, and more than 10 Statistical Analysis. At present, transactions with less than 5 contracts occupy the mainstream, accounting for 74% of the total number of transactions; there are only 8 transactions with more than 10 contracts, but the transaction volume of this stall accounts for 60.73% of the total transaction volume; and if 5 Zhang above is defined as a large-value transaction, and the large-value transaction accounts for up to 85% of the total transaction volume.
As of 12:00 on December 21 (UTC+8), the largest order took place at midnight on December 20, Beijing time, with a single transaction volume of 81.6 contracts, and the total contract option fee equivalent to the current BTC price of over US$80,000. Reached about 1.96 million US dollars; and the open interest also reached 192.5 BTC, or about 4.61 million US dollars.
It is worth noting that all transaction records currently traded are call options and no put options.
The current contract price is relatively cheap: Compared with other contracts that were also settled on September 24, the selling price of this contract is 0.043BTC, the asking price is 0.041BTC, the comprehensive price is around US$1100 per contract, and the contract with an execution price of $32,000 The price has exceeded 5600 US dollars per sheet.
Judging from a series of delivery contract products that expire at the same time, the popularity of the $100,000 execution price contract is not low. Using the open interest as an indicator, it can be found that the current open interest of the contract ranks eighth, which is higher than the contracts with execution prices such as $48,000 and $64,000.
Obviously, the possibility of the execution price reaching $48,000 is much higher than the possibility of reaching $100,000, and the investment value of the $100,000 contract is obviously more than simply the contract maturity premium.
TokenInsight interviewed Lin, the head of Deribit Asia Business.
Compared with traditional markets, the proportion of out-of-the-money call options transactions in the digital asset market is larger, which is also a major feature of the digital asset market. This means that there are a lot of long-term speculators active in the market.
Deep out-of-the-money call options put greater pressure on market makers and platforms. On the one hand, because the option is bullish, the risk to the seller is unlimited. On the other hand, due to the poor liquidity of deep out-of-the-money options, if redemption occurs, the exchange needs to use insurance funds to stop losses. Therefore, to a certain extent, speculators can gain profits through games with market makers and exchanges, but the losses are limited. This undoubtedly stimulates the enthusiasm of speculators, and the recent Bitcoin bull market has stimulated speculators even more.
The digital asset exchange has a relatively high level of risk control, which can maintain a reasonable margin level while selling deep out-of-the-money options.
Lin, Head of Asia Business, Deribit
Analysis of contract elements: How to get profit from a contract with an execution price of $100,000?
At present, the implied volatility (Implied Volatility, which can be used to measure the future risk of options) of the contract has reached 100.6%, which is extremely risky. According to traditional investment strategies, it does not seem to be suitable for investment.
But if you take into account the definition of options, combined with the spot, it is another matter.
For contract sellers, considering that the spot price of Bitcoin has now exceeded $20,000 and the price continues to fluctuate, the market sentiment is positive: most investors believe that Bitcoin will continue to rise.
Then, selling a call option with a strike price of $100,000 and holding the spot at the same time. When the spot and the option are combined together, it is a nearly “stable profit without losing” transaction:
·If the price of Bitcoin rises to 100,000 U.S. dollars, and the current spot holdings is only about 20,000 U.S. dollars, the seller’s income is option premium + ($100,000-current price), without considering external conditions such as inflation discounts, The seller can still get enough income;
·If the Bitcoin price does not reach USD 100,000 and the contract buyer chooses not to exercise, the contract seller will receive the option premium. If the Bitcoin price is not lower than the current spot price when the contract is concluded, the contract seller will receive the option premium + (delivery Time Bitcoin price-Bitcoin price when the contract is executed), the seller can still obtain excess income;
·Even if there is a bear market, the price of Bitcoin falls, and the contract buyer chooses not to exercise, the contract seller can still obtain option premiums to cover losses, and as long as the option premium is greater than the Bitcoin spot spread, income protection can still be achieved.
For contract buyers, there are naturally corresponding profit strategies.
·From a technical point of view, the current execution price of the $100,000 contract is much higher than the spot price. This situation is called “out-of-the-money”. In this case, the value of the contract comes entirely from In time value. The Greek value of the contract (Greek value, which can be used to determine the risk and contract value of the contract over time) is the lowest among all Deribit contract products, which means that the time value of the contract is very high, and the risk is measured by the Greek value relatively low.
Since the price of European options has been increasing over time in the early period, buyers can choose to buy the contract and hold it for a period of time, and then sell it after the contract price rises in order to obtain spread income. Even if you lose money, because the current option price is very low, only 1100 US dollars per card, the loss you bought now is within the acceptable range of investors. If the previous investor also bought put options (Long Put, refers to the purchaser By paying option premiums and obtaining the right to sell a certain amount of a certain commodity to the option seller at a certain price), these losses can even be hedged.
In addition, considering that options can be traded through leverage, buyers and sellers can also use leverage flexibly to amplify contract revenue at the right time.
In short, for both buyers and sellers, in the bull market, most investors are profitable; even if they lose money, the losses are relatively limited, and compared with the potential profit opportunities, these losses are nothing at all.
In the options market, whether it is a product designer or a trader, as long as they are familiar with the mechanism and play the role of options as a risk control tool, they can use their own strategies to achieve profit through the combination of option products and other investment products, or to control losses .
