BIG BTC TRADE!
Yesterday there was a buyer of over 5000 BTC $50,000 calls expiring December 31, 2021.
Buyer paid from $1,100 up to $1,200 per call option.
WHAT DOES THIS MEAN??
Time for a thread 👇👇👇
Yesterday there was a buyer of over 5000 BTC $50,000 calls expiring December 31, 2021.
Buyer paid from $1,100 up to $1,200 per call option.
WHAT DOES THIS MEAN??
Time for a thread 👇👇👇
BTC is currently trading ~ $13,000.
What are the actual chances BTC will close above $50,000 on December 31, 2021?
A professional trader or mathematician can tell you his model’s estimation of the probability that BTC will be above $50,000 on Dec 31, 2021.
What are the actual chances BTC will close above $50,000 on December 31, 2021?
A professional trader or mathematician can tell you his model’s estimation of the probability that BTC will be above $50,000 on Dec 31, 2021.
We can also ask a slightly different question: What are the chances BTC even touches $50,000 any time before Dec 31, 2021?
The chances BTC touches $50,000 are a little better than actually closing above $50,000 on the exact expiration date.
The chances BTC touches $50,000 are a little better than actually closing above $50,000 on the exact expiration date.
A pro options trader would ask: “What is the implied volatility (iv) of the call?”
He’ll input the known parameters of the contract into his pricing model and see that the iv of the call was close to 95%.
He’ll input the known parameters of the contract into his pricing model and see that the iv of the call was close to 95%.
Then he can use one of many models, all with various assumptions of probability distributions (normal, lognormal, etc), to estimate an “implied probability” of the price expiring above the strike.
The implied probability is about 3.5%.
It's about 10% to just "touch" $50,000.
The implied probability is about 3.5%.
It's about 10% to just "touch" $50,000.
The buyer of these options most likely believes that the “actual probability” of BTC closing above $50,000 on 12/31/21 is higher than what the mathematical model says based on the $1200 price.
If not, why else would he pay $1,200 for the call option?
If not, why else would he pay $1,200 for the call option?
Maybe he does not believe that the “actual probability” is higher than the models, but he thinks he can make money on the trade or position in some other way.
Where does the price need to go for the buyer of these options to make money?
Where does the price need to go for the buyer of these options to make money?
In most situations, the buyer can sell his options out in the market at any time before expiration day, and he does not have to hold the options until they expire.
There are many potential ways to make money on this trade. 👇👇👇
There are many potential ways to make money on this trade. 👇👇👇
If the options are held through expiration, BTC price would have to be $51,200 on 12/31/21 to break even and come out of the trade with the initial entry amount of $1,200.
If BTC price is under $50,000 at expiration, the calls are worth $0 and the initial entry amount is lost.
If BTC price is under $50,000 at expiration, the calls are worth $0 and the initial entry amount is lost.
If BTC is above $50,000 on expiration - let’s say $55,000 - then the call option is worth $5,000.
The initial position of $1,200 is now worth $5,000!
A profit of $3,800.
There are many instances during the next 14 months that these options could be worth significantly more.
The initial position of $1,200 is now worth $5,000!
A profit of $3,800.
There are many instances during the next 14 months that these options could be worth significantly more.
Here’s an example:
BTC rallies sharply at the end of this year and closes out 2020 at $22,000.
With price at $22,000, the excitement around Bitcoin has never been more electric and there is more confidence and hype about BTC going parabolic.
BTC rallies sharply at the end of this year and closes out 2020 at $22,000.
With price at $22,000, the excitement around Bitcoin has never been more electric and there is more confidence and hype about BTC going parabolic.
Let's say people are now buying the $50,000 calls for $8,000 with a year to expiration.
The market is now implying a much higher probability that BTC will close above $50,000 on 12/31/21.
The buyer can sell his call for $8,000 - a profit of $6,800, or close to a 600% return.
The market is now implying a much higher probability that BTC will close above $50,000 on 12/31/21.
The buyer can sell his call for $8,000 - a profit of $6,800, or close to a 600% return.
It's important to note that the buyer DOES NOT necessarily think BTC will be $50,000 on December 31, 2021.
He DOES think that buying and holding these calls is going to either
a) be profitable by itself at some point between now and expiration...
He DOES think that buying and holding these calls is going to either
a) be profitable by itself at some point between now and expiration...
... OR
b) he values the “optionality” of owning the position as it will allow him to more aggressively take advantage of any additional trading opportunities that might arise between now and expiration.
👉 This optionality could help generate greater returns and manage risk.
b) he values the “optionality” of owning the position as it will allow him to more aggressively take advantage of any additional trading opportunities that might arise between now and expiration.
👉 This optionality could help generate greater returns and manage risk.
You never know - maybe he is just a chad calling his shot.
It’s always fun to call your shot.
$50,000 BTC at the end of 2021.
That would be fun. #SendIt
It’s always fun to call your shot.
$50,000 BTC at the end of 2021.
That would be fun. #SendIt
Note: The options traded on LedgerX are minis, in .01 bitcoin units. The options on CME are in 5 bitcoin units. The options on Deribit and FTX are in 1 bitcoin units.
These calls traded on LedgerX. The 5000+ call buyer made a ~$60,000 bet.
These calls traded on LedgerX. The 5000+ call buyer made a ~$60,000 bet.
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