In the Bitcoin (BTC) options market, call (buy) open positions ranging from 0,000 to 0,000 reached 6,700 contracts worth 5 million. These derivative contracts offer the buyer the right to buy Bitcoin for a fixed price, while the seller is obliged to trade at the said price. Seen as an effective way to take long positions, these options seem profitable, but often require quite a premium to be paid. The buyer pays an advance fee (premium) to the call option seller. For instance, for the 0,000 call option, 0.164 BTC, equivalent to ,480, must be paid at the moment. Trading blocks of Bitcoin options. Source: Paradigm Telegram Channel The institutional investor-oriented over-the-counter dealing desk shown above is a real transaction organized by Paradigm. In this trade, between
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In the Bitcoin (BTC) options market, call (buy) open positions ranging from $100,000 to $300,000 reached 6,700 contracts worth $385 million.
These derivative contracts offer the buyer the right to buy Bitcoin for a fixed price, while the seller is obliged to trade at the said price.
Seen as an effective way to take long positions, these options seem profitable, but often require quite a premium to be paid. The buyer pays an advance fee (premium) to the call option seller. For instance, for the $100,000 call option, 0.164 BTC, equivalent to $9,480, must be paid at the moment.
Unfortunately, there is no way of knowing which side the market maker is on, but given the associated risks, it can be assumed that the client takes a position expecting a rise.
Having sold the $140,000 call option and purchased the more expensive $100,000 call option, this customer had to pay $138,000 in advance premium. This amount represents the maximum loss at $100,000 on December 3.
Measured in BTC, the red line in the simulation above indicates the net result at maturity. The green line shows the theoretical net return on June 30.
Therefore, this client needs to trade at $65,600 or higher on June 30 to compensate for his investment. This price is significantly lower than the anticipated $107,150, even if the buyer holds the contract until the end of December.
This is due to the $100,000 call option price value being higher than $140,000. While the Bitcoin price rally to $65,600 is quite appropriate for a $100,000 option six months before the contract expires, not so much for the $140,000 option.
The buyer does not have to wait for the expiry date to receive profit. If a strong bull market is seen, he may sell call options. Therefore, if Bitcoin rises by 30% within a few months, it makes sense for the holder of this call option to sell his contract.
As the example above shows, if the price of BTC climbs $75,000 in June, it can make $23,000 net profit by closing the buyer position.
While it is exciting to see the exchanges offering huge $100,000 to $300,000 expiry offers, these amounts should not be treated as price estimates based on precise analysis.
Professional traders use these instruments to implement controlled strategies during the uptrend.
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