I think there is something very interesting in the bitshares concept. Although I, and I think many other people, would like more of a "vanilla" solution. That is, a straightforward option ( call and put ) contract based on an aggregate strike price on Mtgox, bitstamp and other exchanges. The contract length should be for at least a few months - this is where btclevels.com falls down as the binary contract length is so very short. As bitcoin is unregulated and not traded on an open exchange the option premium should be low.
The price of BTC is so volatile as the currency matures people will absolutely need products like this to mitigate price risk. I am new in taking an active interest in BTC although have been aware of the currency since 2011 after reading a New Yorker article.
http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_davis Personally I am really surprised their is not a product in that hedges bitcoin price risk??
I am a professional hedging consultant in real life. Mostly for ag and energy futures and options products but currencies and all other intangibles are roughly the same gig. BTC is unique as it has no counterweight (i.e. none of the suggestions in this thread are hedging strategies, most especially buying other altcoins which I guarantee you will follow BTC directly during these high vol phases, and crash in tandem if crash does come)
I'm very interested in creating this product, obviously there is now an acute need for it, and a shitload of newly minted money to drive liquidity.
The short term binary option sites and such are not the viable solution. They are speculative gaming sites (not knocking it I would like to start one of these as well), The product in demand is an OTC style swap market.
Everything you say above is correct except that the premiums would be low because of the unregulated nature. ANything that increases risk increases option premium. The volatility and total vaguery of BTC is why there is nobody from Wall Street jumping in with an OTC solution for option dealing.
My solution is really pretty simple, and ideally would involve partnering with anyone with a few thousand or more BTC they have no interest in parting with. There is a simple metric whereby puts and calls can be counterweighted against a long position, the idea being that you are insuring both sides of a market but in this case with a 12 mile head start given the volatility. Calls would be covered and puts would necessarily be naked, but if you kept a conservative delta you could manage the whole position relatively easily. Anyone who truly believes BTC is going higher in the intermediate term and holds BTC also should absolutely be doing this already. I think the problem being they view it as compounding their downside risk, which is what my metrics can extinguish.
I hope I will get a product to fill this niche to the marketplace in the very near future. If I can't get it done I have no doubt someone will soon enough. Hope it's not the good old boys but I know they are seldom far behind me so... could be.
cheers...