Tag Archives: Option

BitcoinOptions

The Bitcoin market is highly volatile.  Bitcoin prices often swing by 50% or more.  Now you can act like a big bank and buy and sell Bitcoin derivatives to help manage your risk. Unfortunately you will have to gamble your OWN money instead of your depositors. Also there is probably no government willing to bail you out and no case for ‘to big to fail’ if you lose your bet.

Derivatives are designed to help you manage your risk. You can manage your risk in Ecoins (virtual currency) by buying Bitcoin options that leveraged your dollars and offset the risk of Bitcoin prices going the opposite way that you predict.  For example if you are holding Bitcoins (long position), you might want to bet (buy options) that Bitcoins are going to go down in price.  This will mean that you ‘lose’ less if prices go down.

If you are holding cash instead of Bitcoins (short position), you think that Bitcoin prices are going to go down.  In this case, you can buy options that prices will go up.  This will offset some of your losses if prices do go up and you are sitting on cash.  Dublin based Predictious recently launched Bitcoin option spreads which offers both long- and short-positions. It works about the same as typical option spread markets. You pay a fixed price for a fixed reward if you ‘bet’ correctly.

For example, you can bet on the future price of Bitcoin at a set day and time. For example, in the picture above, if you think that Bitcoins will be priced at or above $1400 on Jan 1, 2014 (Dublin time) you can “buy” the contract at $3.49 and get paid $10 if you are correct. If you believe it will not reach $1400, you “sell” the contract at $0.55 and get $10 if you are correct.