I spent $5,000 to buy options and bet on bitcoin to 350,000.

Text | Huang Xueyu

Produced | Odaily Planet Daily (ID: o-daily)

I bought a quilt cover, and I don’t want to buy it. It can be said that it is an eternal entanglement of small leeks.

I don't say anything else here, just a kind of hedging tool that I have recently known as an option, or permission to solve this problem.

An option is a right that gives the holder the right to buy (or sell) an asset at a fixed price on a particular date. It can be small and big, "get the same income with a cost of 1/10."

In the past month, the options have been launched by various exchanges as “net red pieces”, which has also worried some practitioners.

“The high risk of the currency market, the gap in user perception, and the zero entry threshold, it is easy to expose itself to high risk. Have these exchanges been considered?”

Naturally, this is also a question that exchange players are thinking about. This market is prosperous, stable and healthy development is a prerequisite. The contract that was first introduced was referred to by many currency people as a "coil meat grinder." Can options get rid of this fate?

Options, can you help you not to be vacant?

Give a real example of LedgerX (a cryptocurrency derivatives provider based in New York).

According to the Wall Street Journal, in May of this year, an unidentified trader (let's call it an old K) optimistic about the price of the currency rose to more than 50,000 US dollars a year later. If he takes out the coin at this time, he needs to invest $7,600. As a result, if the price of the currency falls after one year, the principal of the old K will be discounted.

Instead of doing this, Old K chose to buy 30 call options (one option for one bitcoin). The contract stipulates that from the date of purchase to June 2020, the old K can buy bitcoin for $50,000. According to the transaction record, he spent $4,500 on the option product.

If the price of the coin does not reach 50,000 US dollars (that is, about 350,000 yuan), the money of the old K will be directly hit. However, if the price of the currency exceeds 50,000 US dollars, such as rising to 100,000 US dollars, the old K will earn.

Compared to spot trading, option contracts can withstand the risk of future price deviations from expectations, and can be small and large, as the so-called "only 1/10 of the cost, you can get the same income."

Above we talked about the buyer of the call option, then what about the seller?

Still taking the old K as an example, he may judge further down after the sideways correction for the recent correction. Thus, the old K who wants to arbitrage sold the "call (call option)", that is, after a week, the bitcoin was sold at a certain price, such as 9,000 dollars.

As the buyer's counterparty, the seller (old K) can obtain its "rights" regardless of whether the buyer is exercising or not. If the future price of the currency really falls, the counterparty will probably choose not to exercise the right. At this time, although the spot in the hands of the old K has depreciated, the loss can be appropriately hedged by selling the option; but if the price of the currency rises, the buyer exercises the right, then the old K It is necessary to fulfill the obligation to sell assets (the seller's old K can also be called a compulsory warehouse).

In order for the old K to perform, the futures exchange usually charges him a certain margin. This margin is similar to the margin in the contract. When the market develops in an unfavorable direction, that is, when the price of the currency rises, the old K needs to pay the margin. Otherwise, the trading platform will find that the old K is unwilling or unable to perform, and the old K’s margin is mandatory. Closing positions (called "hedging" in the options market). To put it bluntly, the old K has no chance to play, and his selling rights will also be taken over by the new seller (it can be seen that the demand market has a very high demand for liquidity). The difference with the contract is that if the buyer gives up the exercise, the deposit will be refunded to the old K.

Miner: Why do you recommend me to play options?

Who tends to play options?

Miners, probably the answer I heard the most.

“Using options to build a hedging portfolio can help miners secure the lowest yields for mining while maintaining the potential for higher returns,” said Chen Xin, founder of Binance JEX.

BHEX founder Ju Jianhua also said that at the current stage, the fluctuations in currency prices and the increase in computing power have caused great uncertainty in the mining revenue of miners. Hearing options can be used for hedging and hedging risks. .

OKEx Senior Researcher Li Lianxuan has divided the participants in the options market more carefully, with speculators, hedges and arbitrage.

Obviously, the miners are hedges.

Li Lianxuan explained that miners can buy the selling rights (put options) of “selling bitcoin for $9,000 after one month” in the options market. After paying the option fee, they can lock in the price of selling bitcoin after one month. If the price of the currency rises after one month, the miner can not exercise the selling right and lose the option fee, but can obtain the gain from the rising price of the currency.

Of course, miners can also act as sellers and sell "buy rights (call options)." For example, the miner sells the option of “buy bitcoin for $9000 after one month”. After the transaction is successful, the miner is equivalent to paying the currency pending order in advance, thereby locking the currency price and additionally obtaining the premium from the buyer. .

Both of these methods can hedge the miners who are about to dig out the coins.

It is not known how many miners choose options, but the options attract many futures users can be determined.

JEX launched its options products in early 2018. “We have a considerable number of stable users, many of which are originally for futures trading.” Chen Xin also told Odaily Planet Daily.

“What is the biggest complaint of futures users? That is, the high leverage of futures makes decision making more frequent and difficult. There is often a 10-20% volatility that faces a burst, users have to operate in real time and watch at any time. In the contract period, even if there is a big ups and downs in the opposite direction, there will be no risk of a burst." Chen Xin said.

The new derivatives battlefield of the giants

Like other financial instruments, options are born out of market demand. Fortune-sensitive exchanges have long been on the track and ready to go.

Coin's acquisition of JEX, OKEx, BitMEX, CME and Bakkt and other exchange giants will also be on the line of options products.

“A competitive market, only companies that are constantly innovating can survive. You don’t have to do other companies naturally. This is why traditional financial markets continue to appear in new financial derivatives, and large and medium-sized exchanges in the currency circle last year. The reason for the launch of the contract products. Now, through the futures products, these companies also have a certain reserve technology reserves, the introduction of options contracts is a matter of course." Li Lianxuan said.

The exchanges that entered the market were also based on the judgment that “the options market is broad”.

Xu Kun, vice president of strategy, said on Weibo that “the market space for derivatives in traditional financial markets is more than ten times that of the spot market. Like digital currencies, the future derivative space is very high.”

Paul Chou, CEO of LedgerX, admits that LedgerX's institutional clients, with assets ranging from $10 million to $1 billion, expressed interest in new derivatives.

“I understand that Bitcoin’s $100,000 is a big number, but many people in this field remember the bitcoin’s $1, and then it’s $10, $100, $10,000… (so many big customers are We are not surprised to avoid buying low-cost coins. We want to buy Bitcoin options contracts at an agreed price (lower price) in the future."

Chen Xin concluded that the gradual outbreak of the options market is on the surface of the need for exchanges to maintain heat. Inside, options and futures are basic derivatives. When the number of users in the spot market and the volume of transactions reach a certain level, the cornerstone of this financial system is bound to be added.

So, with the influx of traditional exchanges that can “provide compliant options products”, what are the advantages of native players in the currency circle?

Boli, head of BHEX exchange options products, divides market competition into “two worlds”. “The US Compliance Exchange is one world, and the other exchanges are another. Non-Americans are having trouble opening a bank account in the US, let alone trading in compliance transactions.”

The futures have not yet understood, and now you have to play options?

We all know that futures contracts have become a battleground for military strategists because their gold-absorbing effects have been fully verified. So what about options?

Neither LedgerX, JEX nor BHEX have disclosed their own "records". The only one announced was the derivatives exchange Derbit, whose BTC option day transaction amount reached $25 million at the peak of January this year. This achievement can be achieved when the market is in its infancy, and it is still very imaginative.

However, the futures contract that was first introduced is still referred to by the majority of the currency as “coil meat grinder” and “super high-speed harvester”, and the risk of options is not low. For example, if you do not set a stop loss line for the obligation position of the option, it means that the obligation position may have unlimited losses.

For example, if a buyer buys an option, he can buy Bitcoin for $10,000 in one month and pay a $1,000 premium. After January, if Bitcoin falls to $5,000, the buyer will lose up to $1,000 in royalties and the seller (obligatory position) will earn $1,000. Conversely, after one month, bitcoin rose to $20,000, the buyer earned $9000 and the seller lost $9000. The potential loss of the seller is much larger than the potential income of $1,000.

The high risk of the currency market and the gap in user perception have made A Sa, a currency trader from the traditional financial industry, worried.

“In the contract market of the currency circle, most users even trade the rules of the futures contract without fully understanding them, exposing themselves to high risks; the design of option products is more complicated than futures, and users can fully understand the current Still a question mark."

A Sa also used traditional option products to make a comparison. “Looking at the requirements of the domestic options market for qualified investors, the threshold is quite high. This is to protect the interests of investors and require participants to have relevant expertise and investment. Experience, and most importantly, there is a certain degree of risk tolerance. The digital currency options exchange directly reduces its threshold to zero, which corresponds to a sharp increase in risk."

“The domestic traditional options market has only developed for a few years. With such a complicated financial product, the currency exchange is busy on the line. Is the market risk taken into account in the future? The exchange rashly puts retail investors in the high-risk investment market. I feel less responsible." The trader reiterated.

Another Quantitative Team Leader also agreed:

"Unexplained currency people come to play options casually. To put it bluntly, they come in as gambling, lose millions of losses, and frequent rights violations, which will affect social stability."

The zero-user access threshold is the result of the lack of effective regulation by the exchange.

"Now the futures contracts are all playing the ball, not to mention the options. But in the United States, the supervision is relatively perfect. In order to provide option services to US investors, it is necessary to apply for relevant licenses, otherwise it is illegal." The person in compliance with the business said.

Indeed, this market is prosperous, stable and healthy development is a prerequisite. Exchange players are not unaware of it, but the road to compliance is a block of Achilles in this industry.

Although there is no policy, many derivatives exchanges are still in the long run and are still trying to regulate themselves.

After five years of development, the number of currency futures gradually reached the market education and user outbreaks. We really should leave some time for new products, and investors need to be very cautious.

Original article; violation of the law will be investigated.

Editor's Note: This article does not change the original intention of the author.