Cash Settled Options

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Top Broker!
    Best Choice For Beginners!
    Free Trading Education!
    Free Demo Account!
    Big Sign-up Bonus!

  • BINOMO
    BINOMO

    Perfect For Experienced Traders!

Options

1. Introduction

2. Example (Options)

3.1 BTC Options Contract specifications

  • Symbol: The symbol of an option consist of : “underlying-date-strike-c/p”, for example “BTC-30MAR18-10000-C” is a call option on 1 BTC, with strike 10,000, exercised on 30th of March 2020
  • Tick size: 0.0005BTC
  • Underlying: Deribit BTC index. The index is composed of 6 leading BTC-USD exchanges, currently Bitfinex, Gemini, Bitstamp, GDAX, Kraken and Itbit. Every 6 seconds the index is calculated by taking average of bid-ask from those 6 exchanges, removing highest and lowest value, and then take the average of the remaining 4 values. This to reduce the risk of significant impacts of flash-crashes or short squeezes on those exchanges.
  • Multiplier: 1 (The usual underlying of stock options is 100 shares. On Deribit exchange there is no multiplier. Each contract has as underlying of only 1BTC (priced by Deribit BTC index)
  • Strike price intervals: depends on the current bitcoin price. Can vary between 250 USD and 5,000 USD.
  • Strike prices: In-, at- and out-of-the-money strike prices are initially listed. New series are generally added when the underlying trades through the highest or lowest strike price available.
  • Premium Quotatio n: In BTC, minimum tick is 0.0005 BTC (5/10, 000 BTC, or at exchange rate of 10,000 USD/BTC that would be 5 USD/tick). On the platform the equivalent in USD is shown in the trading table, based on current BTC index price.
  • Expiration date: Each Friday, expiration at 08.00 UTC.
  • Exercise Style: European style with cash settlement. European style options can only be exercised at expiration date. This happens automatically on Deribit platform at expiration. No action from trader is required.
  • Settlement value: Exercise will result in settlement in BTC immediately after expiration. The exercise-settlement value is calculated using the average of the Deribit BTC Index over the last 30 minutes before expiration. The exercise-settlement amount in US $ is equal to the difference between the exercise-settlement value and the strike price of the option. To get the final amount in BTC, this amount gets divided by the exercise-settlement value (the average of the BTC-Index in last half hour of trading).
  • Mark price: Mark price is value given to the option by the risk engine during trading hours. It is the average between bid and ask price whenever possible, but the price has to fall within limits set by Risk Management of Deribit. This is done by setting a minimum and a maximum of volatility implied by the option price (implied volatility). For example minimum 50% and maximum 80% implied annualized volatility. If the average of bid/ask at any time is above or below those values, those values will be used instead for the relative option. The mark price is also the valuation used for profit/loss calculations for open positions.
  • Allowed trading bandwidth around the mark price. A buy order can have a price not more than 0.04BTC higher than the mark price of the option and a sell order can have a price not more than 0.04BTC lower than the mark price.
  • Position limits: Currently no position limits are in effect. Position limits are subject to change. At any moment Deribit could impose position limits.
  • Margin: Please refer to Margin Calculation
  • Trading hours: 24/7
  • Minimum order size: 0.1 option contract on 1 BTC
  • Block Trade: Minimum 25 option contracts

3.2 ETH Options Contract specifications

  • Symbol: The symbol of an option consist of : “underlying-date-strike-c/p”, for example “ETH-30MAR18-100-C” is a call option on 1 ETH, with strike 100, exercised on 30th of March 2020
  • Tick size: 0.001 ETH
  • Underlying: Deribit ETH index. The index is composed of leading ETH-USD exchanges, currently Bitfinex, Gemini, Bitstamp, GDAX, Kraken and Itbit. Every 6 seconds the index is calculated by taking average of bid-ask from those 6 exchanges, removing highest and lowest value, and then take the average of the remaining 4 values. This to reduce the risk of significant impacts of flash-crashes or short squeezes on those exchanges.
  • Multiplier: 1 (The usual underlying of stock options is 100 shares. On Deribit exchange there is no multiplier. Each contract has as underlying of only 1 ETH (priced by Deribit ETH index)
  • Strike price intervals: depends on the current Ethereum price. Can vary between 1 USD and 25 USD.
  • Strike prices: In-, at- and out-of-the-money strike prices are initially listed. New series are generally added when the underlying trades through the highest or lowest strike price available.
  • Premium Quotatio n: In ETH, minimum tick is 0.001 ETH (1/10 00 ETH, or at exchange rate of 1000 USD/ETH that would be 1 USD/tick). On the platform, the equivalent in USD is shown in the trading table, based on current ETH index price.
  • Expiration date: Every Friday, expiration at 08.00 UTC.
  • Exercise Style: European style with cash settlement. European style options can only be exercised at expiration date. This happens automatically on Deribit platform at expiration. No action from trader is required.
  • Settlement value: Exercise will result in settlement in ETH immediately after expiration. The exercise-settlement value is calculated using the average of the Deribit ETH Index over the last 30 minutes before expiration. The exercise-settlement amount in US $ is equal to the difference between the exercise-settlement value and the strike price of the option. To get the final amount in ETH, this amount gets divided by the exercise-settlement value (the average of the ETH-Index in last half hour of trading).
  • Mark price: Mark price is value given to the option by the risk engine during trading hours. It is the average between bid and ask price whenever possible, but the price has to fall within limits set by Risk Management of Deribit. This is done by setting a minimum and a maximum of volatility implied by the option price (implied volatility). For example minimum 50% and maximum 80% implied annualized volatility. If the average of bid/ask at any time is above or below those values, those values will be used instead for the relative option. The mark price is also the valuation used for profit/loss calculations for open positions.
  • Position limits: Currently no position limits are in effect. Position limits are subject to change. At any moment Deribit could impose position limits.
  • Margin: Please refer to Margin Calculation
  • Trading hours: 24/7
  • Minimum order size: 1 option contract on 1 ETH
  • Block Trade: Minimum 500 option contracts
  • Allowed trading bandwidth around the mark price. A buy order can have a price not more than 0.04 ETH higher than the mark price of the option and a sell order can have a price not more than 0.04 ETH lower than the mark price.

4. Margin Calculations

5. Portfolio Margin (available upon request)

  • Lower margin requirements
  • Increased leverage
  • To qualify for Portfolio Margin, you must maintain a minimum net equity of 0.5 BTC or 15 ETH.
  • Trader needs to have some experience trading options and declare to have understanding about the concept of portfolio margin

  • BTC: maximum price move of +/- 15.00%
  • ETH: maximum price move of +/- 15.00%
  • maximum implied volatility change of (30/days to expiration)^0.30* 28.00% . Example: options expiring in 30 days: IV change of maximum 28.00% , options expiring in 15 days: IV change of maximum (30/15)^0.30* 28.00%
  • Contingency component of 0.01 BTC per option for all net short options per strike. Example: you have a position in strike X, call +10 and put -20, your net short position on strike X is -10, thus 10* 0.01 BTC extra margin requirement is added to the portfolio margin calculation.
  • Contingency component of 0.60% of underlying value is added for offsetting futures. Example: you are long 100 BTC in Future A, and short 100 BTC in Future B, then 0.60%*100 BTC will be added to the portfolio margin calculation.
  • Contingency component of 0.00% for VEGA’s offsetting in different expirations. Example: you are net long 10 VEGA in Expirations A/B/C, and net short 10 VEGA in Expirations D/E/F, we will add a contingency of 0.00% thereof to the portfolio margin calculation.

6. Order types (Options)

7. Historical volatility chart

8. Mis trade rules

Due to various reasons it can happen that options are being traded at prices that can be regarded as having taken place in an abnormal non orderly market, where the chance is very high that one side of the trade has been done unwillingly. In such cases Deribit might adjust the prices or execute reversing trades.

Price adjustments or executing reversing trades of option trades will be only done if the traded price of the option was further away from the theoretical price of the option than 5% of the underlying (0.05BTC for BTC options). For example if an option is traded at a price of 0.12BTC and its theoretical price is 0.05BTC, trader can request for a price adjustment to 0.10BTC.

If a trader realises a trade executed at a price regarded as being mis-priced, he should write an email to the exchange ([email protected]) asking for a price adjustment as soon as possible.

The theoretical price of the option is the mark price, though it is difficult for the exchange to at all times have the mark price exactly at theoretical prices. So in case of disagreement about the theoretical price, this price will be determined consulting primary market makers on the platform. Deribit will follow their recommendations as for what was the theoretical value of the option at the moment of trade if there is any disagreement.

A request for a price adjustment of a trade has to be made within 2 hours after the moment of trade. If for whatever reason the counterparty already made a withdrawal of funds, and Deribit is not capable of retrieving enough funds from counterparty, price adjustment will only be made for the amount that was retrievable from counterparty account. The insurance fund is not meant and will not be used for funding mis-trades.

CASH-SETTLED OPTIONS

Option contracts which does not require the actual physical delivery of the security due to high transport costs or when the buyer does not intend to hold its physical evidence. Settlement is done at the exercise date by paying the cash equal, the difference between the strike price and the present value of the security.

Bakkt Goes Live With Options, Cash-Settled Futures Products

Bakkt President Adam White image via CoinDesk archives

Nikhilesh De

Bakkt Goes Live With Options, Cash-Settled Futures Products

Barely three months after launching its long-anticipated physically settled bitcoin futures product, the Intercontinental Exchange’s Bakkt has gone live with its bitcoin options and cash-settled futures contracts.

The New York Stock Exchange’s sister firm announced in a blog post Monday that it’s using its physically settled bitcoin contracts as a benchmark to support the new products, which were both announced in recent weeks.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Top Broker!
    Best Choice For Beginners!
    Free Trading Education!
    Free Demo Account!
    Big Sign-up Bonus!

  • BINOMO
    BINOMO

    Perfect For Experienced Traders!

The blog post compared Intercontinental Exchange’s bitcoin ambitions to those of its Brent Crude Oil Futures. The company launched a number of swaps, options and futures contracts based on the crude oil product, and hopes to follow “a similar playbook” to grow its bitcoin-related products.

“By starting with the physically delivered Bakkt Bitcoin (USD) Monthly Futures, we have a benchmark contract which provides the foundation for us to develop complementary products based on the needs of our customers,” the blog post said.

While Bakkt’s physical futures contract saw a slow start after it was launched in late September, volume has recently picked up, with the monthly futures product trading more than $120 million three months in.

Bakkt’s options contract comes just a month before CME, which already offers cash-settled bitcoin futures in the U.S., launches its own similar product. However, while Bakkt’s pricing will be based around its existing physical product, CME’s is dependent on its bitcoin index.

Malta-based OKEx also announced Monday that it would offer options trading later this month.

Bakkt’s monthly options contract has no exposure to spot markets, the firm said.

The cash futures, offered through ICE Futures Singapore, seemingly takes aim at potential demand in Asian markets, though any ICE customer can trade the contract.

The blog post also included a signup link for individuals interested in being updated on Bakkt’s consumer app, with the link itself asking those signing up to specify whether they are a consumer or a merchant.

Bakkt announced the app in October, saying it would help consumers pay for goods using bitcoin. Starbucks will be a launch partner when the app goes live sometime next year.

“At Bakkt, our mission is to bring trust and utility to digital assets,” the blog post says. “These new contracts represent an important milestone in the development of this emerging asset class and our bitcoin product complex.”

Bakkt’s new launches come days after CEO Kelly Loeffler was named as Georgia’s next Senator by state Governor Brian Kemp. An ICE statement shared last Wednesday indicated that Loeffler would have to step down from her current role before she is sworn in on Jan. 1.

Read more about.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Top Broker!
    Best Choice For Beginners!
    Free Trading Education!
    Free Demo Account!
    Big Sign-up Bonus!

  • BINOMO
    BINOMO

    Perfect For Experienced Traders!

Like this post? Please share to your friends:
How To Choose Binary Options Broker 2020
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: