Topic: WTS - BTC Put Options (Read 479 times)

Its pretty easy to understand why a any btc settled option really doesn't work, at least not as insurance. It might still be okay as some sort of hedging vehicle.

Imagine tomorrow some unfixable crypto or game theory flaw is discovered with btc, and the value drops to zero. Someone holding insurance would really want to be paid off, but a btc payoff is worthless.

 

European or American style option?  (European only can excersize at expiration American whenever the option holder wants)

Do you want exotic features, like a knockin, or lookback?

BTW - if you are use to trading options on a US exchange, you almost certainly traded Vanilla American Options.

I think I would be happy to do it for around 20%

I understand.  Is there a trusted escrow holder that will hold USD?  Is there a cheap, easy, and non-reversible way to get the cash to the escrow holder (This is where BTC becomes more useful)?

This is the flaw in my plan that I hadn't noticed.

I suppose that the escrow would have to be in USD.  The same system of initital funding, and maintenance calls would still work, but it'd have to be with USD instead of BTC). I'm not sure if there is an easy way to place USD into escrow, or if any of the trusted escrow holders here at bitcointalk are willing to hold USD in escrow.

1 month. Give me quote for 100 coins.

For what duration and for how many coins?  PM me if you don't care to discuss the specifics in the thread.  I am going to leave all convs that don't start with the counter party (you in this case) in the public thread to try and create as much transparency as possible... but if you want to discuss them privately, pm me.

Jake


Danny:  I get what you are saying, but my point is, why not just secure it with USD?  I really don't want to put up BTC to give insurance on BTC, I'd rather just post the cash. 

Perhaps.  Since I'm looking to be the buyer, and you were looking for a way for escrow to work, I just put something together off the top of my head that would eliminate risk for me (put sellers are typically eliminating risk for the put buyer in exchange for a fee).


Not 100% of the total bitcoins in the contract, just >100% of the payoff amount.


Put buyers are generally paying for risk reduction.  The put seller gets a fee up front in exchange for taking on some risk from the put buyer.


Not total exposure, just current payoff amount.


The problem you're running into is that bitcoins are extremely volatile, so there's a significant risk of a rather stunning drop in price.  If it was more stable, there wouldn't need to be as much in escrow, and the likelihood of a call for additional escrow funding is unlikely.

Here's an example to make it easier to see what I'm saying:

Lets assume that you are selling:
APR 18 mBTC 0.416

If I've got that written correctly, that's a contract for the put buyer to sell 100 mBTC for $41.60 on April 18. (or 0.1 BTC at $416 per bitcoin)

For this example lets pretend that I only purchase 1 contract.

If the exchange rate doesn't drop below $416/BTC before April 18, you get your escrow back (which is probably worth more than when you put it in there), as well as a per contract profit from the agreed option price.

If bitcoin goes belly up and the exchange rate drops to $0, your total exposure is $41.60 per contract.

Lets say that we agree that the initial escrow should at least cover the payoff down to an exchange rate of $400 per BTC.  That means you'd need to place in escrow at least 0.004 BTC per contract sold ($1.60 payoff / $400 per BTC = 0.004 BTC).

Now, if you place the minimum in escrow and the exchange rate falls to $402.58 per BTC, then the payoff is $1.342 per contract.  Escrow (0.004 X $402.58 = $1.61) is less than 120% of the payoff amount (1.61/1.342 = 119.97%).  There is a call to fund escrow with at least an additional 0.002667 BTC per contract (bringing escrow back up to 200% of the current payoff).  At this point the total that you have in escrow is at least 0.006667 BTC per contract (0.006667 X $402.58 = $2.684).  Keeping in mind that unless the bitcoin exchange rate recovers, you're already on the hook for $1.342 per contract if it were exercised.

If you still have only the minimum in escrow and the exchange rate falls further to $394.10 per BTC, then the payoff is $2.19 per contract. Escrow (0.006667 X $394.10 = $2.627) is less than 120% of the payoff amount (2.627/2.19 = 119.95%). There is another call to fund the escrow with at least an additional 0.004446693 BTC per contract (bringing escrow back up to 200% of the current payoff).  At this point the total that you have in escrow is 0.01111393 BTC per contract (0.01111393 X $394.10 = $4.38). Keeping in mind that unless the bitcoin exchange rate recovers, you're already on the hook for $2.19 per contract.

This process continues with a margin call every time the value of the bitcoins in escrow aren't enough to cover 120% of the current payoff amount.

This is all just an example.  The values can be adjusted until we find something that is agreeable to both of us.  The strike price doesn't have to be $416.  The initial funding doesn't have to cover a drop to $400/BTC, the call doesn't have to be at 120% of current obligation, and the incremental funding doesn't have to bring it to 200% of current obligation.

I'd be interested. What would be your fee for a strike price of $300 per BTC?

i guess the writer of the option has to have usd held by an escrow for a btc/usd put option

if op want to write put options for 100 bitcoins he would have to have 50% of the usd held by escrow or since price is $440 now he would have to have $22k held by an escrow
if the price of btc drops close to 220 then escrow can exercises the call option immediately if he can

assuming the put option is for 100 bitcoins and strike price is $440 and the option is $44 each and time until expiration is 2 months then
i would buy 100 put options for $44 each
i would send the escrow $4400
then he would send the escrow $22k
the escrow would then give the writer the $4400 as his payment for the put options.
if price of bitcoin falls i can exercise the put option myself by sending the escrow 100 btc minus $22000 in bitcoins at any time during the 2 months and the escrow would then send me the $22000 he is holding and then send the writer of the contract the btc without waiting for the 2 months to finish.
if i dont exercise the put options by the time the 2 months ends and bitcoin is under $440 then the escrow can exercise it for me by buying 100 btc - $22000 in bitcoins using part of the $22000 then send the btc to the writer of the contract. then remaining usd would be sent to me.
if instead bitcoin is higher than $440 at the time of expiration the the escrow would send the writer of the contract the full $22000.
so the writer would get his $22k back and get to keep the $4400

of course there will be fees for the escrow and it would be calculated and paid at the start.

yes that would work but having the writer of the put option holding btc as assurance for the escrow would defeat the purpose of writing a put option.
since not only does he lose money from the put option that he wrote if the price of btc drops he would be also losing the value of his assurance.
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Yep, this is the problem with this way of assuring the trade.

yes that would work but having the writer of the put option holding btc as assurance for the escrow would defeat the purpose of writing a put option.
since not only does he lose money from the put option that he wrote if the price of btc drops he would be also losing the value of his assurance.

I mean, that would work, but I think it is skewed to the buyer of the options in terms of the requirements.  The idea of holding >100% in escrow doesn't really work with what I am thinking.  Generally speaking you trade options to use leverage... I understand how that can be hard to stomach in this situation so I can agree to the idea of having a cash escrow for the total liability, but I don't want to put up 120% of exposure... the price of the option would have to be really high to make it worth putting up that much.  I mean, I get what you are saying, I understand how that would be a good and safe setup for the buyer of the option, but they would be just as safe with a USD deposit for the full value of the contract... safer in fact.

Thoughts?

I think the following would work, right? (If anyone sees a flaw in my thought process here, let me know):

The easiest way to do it would be for you to place BTC in escrow.

If you fail to provide the appropriate amount of USD when the buyer chooses to exercise the option, then an equivalent amount of BTC (at the exchange rate at the time of exercise) plus a small inconvenience fee can be sent to the put buyer as payment.  The put buyer would then be able to sell the BTC on the open market to recover the USD that are due to them (with the inconvenience fee hopefully covering any exchange costs).

The escrow would probably start with enough to cover a drop in BTC exchange rate to an agreed amount below the strike price.  There would be a call to increase the funding of the escrow to be at least 200% of the payoff anytime the exchange rate drops to a level that results in the escrow holding less than %120 of the payoff.  If the increased escrow funding isn't received before the escrow falls to 110% of the payoff (or within 8 hours of the call, whichever is first), then the option is automatically immediately exercised and the appropriate amount from escrow is sent to the put buyer as payment.

I suppose that the best method I can offer of assurance is escrow.  I haven't asked them, but I would be willing to use Tomatocage or Nightowl Ace.

What kind of size are you guys thinking?  

I can also sign a PGP key or whatever else.  As I think about it though, how would the escrow work?  I mean, I would imagine it would be USD that was held in escrow, no?

Also, I have no interest at all in cross coin options.  I am not looking to have doge exposure... WOW EXPOSURE SO LEVERAGE WOOF WOOF MOTHERF*&KER

Depending on the cost and the strike price, I might be interested.  How can I be certain that you'll honor the contract if the price drops and I choose to exercise the put?

its possible yes, with the help of an escrow.
personally i would love to buy some to hedge my portfolio. if you can find a reliable and trusted escrow then id be glad to.
i would like to buy put options in other currencies too like dogecoin for example. i would love to buy many dogecoin put options. such finance wow

Not sure if this is possible, or even the correct section of the forum, but would anyone here be interested in buying p2p put options on btc?

I am interested in writing the options.