This post is a look at the recently released Bitmex Up and Down contracts and the lack of clarity around them and the issues that has caused. There will be a little bit of maths and options terminology, but I'll do my best to try to keep it simple.
Background and Contract Specification
Bitmex released the Weekly Up Contract (XBT7D_U110) for live trading on the 30th Apr, with the Weekly Down contract (XBT7D_D90) coming later, on the 14th May. Both contracts are essentially European style options contracts (with the addition of a knock out price for the Down Contract), which settle weekly on Fridays.
This was an interesting development on the part of Bitmex. They made 2 posts on their blog (1
) explaining the situation. Although, the blog posts weren't posted on the website announcement feed nor (to my knowledge) on their twitter, so many people (including myself) missed them.
While the contracts came with the usual Bitmex explanation of specification and example, what struck me was the fact that:
- Throughout the whole contract guide there wasn't a single reference to "Options", despite that being the nature of the contacts.
- Traders aren't allowed to short them - "Only the BitMEX anchor market maker can be net short".
(Full screen shots of the guides as of 15th May 2018 can be found at the bottom of the article)
We now have the issue of a contract that many traders will have no idea how to price, that is consequently trading over 10x higher than fair value, and only the market makers are allowed to short.
Options pricing and Fair Value
The Up contract is equivalent to a European style options call, while the Down contract is a slightly modified European options put. Options contracts give the buyer the right (but not obligation) to buy (call) or sell (put) at the given strike price on the settlement time (European style).
European style options contracts are generally prices using the Black-Scholes model
, which is used to calculate the fair price of a contract along with measures of its sensitivity to various factors such as underlying price and volatility (known as Greeks). Options Fair Pricing vs Current Pricing
At time of writing the Up contract (XBT7D_U110) last trade price is 0.00300 BTC (~$25.57), with 2.89 days until expiry. The Bitmex historical volatility index is currently 54.15%, strike price is $9500 and Bitcoin is $8530.
The black-scholes calculator
suggests that the fair price is actually $1.916. And that is the calculation for a 1 Bitcoin contract. Where as the Bitmex contracts represent 0.1 XBT each. Making the fair value $0.1916, rather than the current $25.57. Which is a bit insane.
What if we use a higher value of volatility for our calculations, will the price be a bit more reasonable? Similar contracts trading on a different exchange have an implied volatility of ~75% annualised. This gives a fair value of $1.351 for each Up contract.
I've also occasionally seen Bitcoin volatility reach up to 120% or higher. This value still gives a fair value of $7.870.
In other words, even by the craziest stretch, the Bitmex contracts are trading way higher than their fair value - and only the Bitmex designated market makers are allowed to short.
Options profit outlook
Now, what if the contracts were trading at fair value, what is the probability that the options would actually expire "In the money" (payout not zero).
One of the "Greeks" calculated under the black-scholes model, Delta, is generally used as a measure of exposure to the underlying asset, but can also be used as a probability that the option will expire in the money.
The absolute of Delta (non negative value) gives said probability. A call contract with Delta 0.75 has a 75% chance of expiring ITM. A put contract with a delta of -0.3 has a 30% chance of expiring ITM. Probability of expiring In the Money
So, what are the chances of our Up and Down contracts expiring ITM? The Up contract's ticker is "XBT7D_U110", meaning that it expires every 7 days and its strike is placed at 110% of the trading price at the start of the trading period.
Again looking at the Bitmex volatility index at 54.15%, the Delta of this contract over 7 days comes to 0.1087, only an 11% chance of expiring in the money. 75% volatility gives Delta at 0.1933 and 120% gives Delta 0.3119. Not the best bet however you look at it.
For the Down contracts its even worse, with Delta being -0.07458 (7.458%), -0.1431 and -0.2367 for 54.15%, 75% and 120% volatility respectively.
The likelihood that any of these contracts actually pays out any money is rather stacked against the trader. And, as I've mentioned before, only the designated market makers are allowed to short these contracts to collect the price premium.
Are Options ever worth it?
Options trading is a wide and very mathematical discipline to master. When contracts are traded fairly (with reasonable pricing and without restrictions) options trading can be very profitable and allow all sorts of novel trades, such as betting on volatility.
However, in its current state, I personally wouldn't touch the Bitmex Up and Down contracts with a 10 foot pole. They are over priced and restricted from the ability to short. I have seen Bitmex as a generally reputable exchange in the past, however situations like this make be question that assessment.
Contract Guide Screenshot
I tried to archive the Bitmex contract guides with both archive.fo/
, however neither worked, so I used web-capture.net/
for screenshots instead. The full screen shots can be found here: Up Contracts
, Down Contracts
Disclaimer This does not constitute professional financial investment advice.
My original blog post with nicer formatting can be found here
I'm also happy to take constructive criticism and amend the post if necessary.
edit: Thanks to happy__hippo
for pointing out the Bitmex posts about the contracts
. I've amended the article to reflect this.
techbytes submitted by
Ark community would like to welcome Joel (@fractastical) from Swarmfund here for today AMA and thank you for taking the time to be here. rby123
people used so much gas that there are few tx per block dr10
Hello Joel joelafc
theres only room for one Joel around here dr10
you are joel as f. :kappa: techbytes
Joel anyone else here from Swarmfund? joelafc
left #trading_altcoins fractastical
Yes they are all next to me in person axente
i can have them join this slack mad4thrash
hello @fractastical jakethepanda
Hi Joel @fractastical welcome mad4thrash
unconfirmed tx to ico: 8,709 txs 417,232.73 ETH rotfl (edited) mike
Hi Joel, thanks for joining in dr10
I understand Swarmfund focusses on creating a platform, where people can crowdfund revolutionairy projects over and over again. What makes Swarm-Fund attractive to bright minds with potential revolutionairy ideas and why should normal people invest in it? Many good ideas imply a free and open source society, without big money involved for example. fractastical
I'd say our value proposition over time has shifted a bit from a generic crowdfunding platform to introducing real assets into public markets via cryptographically secure ledgers dr10
As I read through your blog I had the impression its a crowdfunding platform fractastical
not to say that I'm opposed at all to what you mention
it started as the first blockchain crowdfunding platform moobox
nice spike on AMP dr10
Can you then in simple terms (preferably for non-crypto people) explain what Swarm.Fund is about and does? fractastical
and we had lots of itneresting projects that ran or wanted to run
sure i'm happy to give the little bit of a historical approach, is probably interesting fractastical
early on we had tones of projects that wanted to list, many of them were in this revolutionary world-changing category mike
Hi Timo, thanks for joining in, Timo is also from Swarm Fund. fractastical
not all that many necessarily had a very clear business model underneath tlehes
Thanks Mike mike
And Philip as well dr10
Hi guys pieperp
Hello everyone! dr10
So but you are still are crowdfunding platform then? Or anything else? fractastical
so my partners @pieperp and @tlehes helped bring some old world asset classes into the crypto world
i think it's more accurate to described it as a community-owned asset marketplace moobox
ok guys i need to do some LIFE - ttyl fractastical
so those assets could be real estate
or other hedge funds anton
I’m here from Swarm as well with Sebastian. We’re a full stack dev and ux designer respectively. wires
hi! This is Jelle also from the swarm Team :slightly_smiling_face: (edited) fractastical
projects that alreayd exist, or are already getting started dr10
What kind of projects? Would you quickly sum up some of the most differents? (edited) pieperp
we have this unique opportunity to create a solution for old fiat money that is still on the sidelines and bridge it to come to the crypto world. And vice versa. tlehes
We are curating the initial projects to set the initial tome as to what Swarm should be focusing on in terms of asset classes or sub-funds. High risk (Crypt hedge fund) to low risk (Real Estate) fractastical
both philipp and Timo have experience doing portfolio management pieperp
uploaded this image: Here's an example of projects that will be part of our pilot projects Add Comment dr10
and these projects are for example? I have read that these project start as private blockchains as an experiment and then slowly get more and more serious and public
or is this only the case of the worldchanging projects? fractastical
great question, at the moment we are focusing less on "startup like" projects
but i think that this is a great model
the whole way that world works need sto be radicaly rethought wires
uploaded this image: swarmfund.png Add Comment fractastical
what you are describing is a bit like an incubator model
oh yeah, look at the @wires diagram, we used this at a private crypto-investor event last night dr10
Did you already decide on which ethereum platform you will deploy? I have read that this will be a community decision and you only know that you will be on an EVM fractastical
basically swarm is the top of the pyramid
we've deployed on test net so far
ethereum as a technology actually presents several problems for us at this point pieperp
We have worked diligently on a clear got-to-market that 1/ validates the technical and legal framework we developed and 2/ solidifies a scalable market while 3/ it creates a market health and confidence for the community dr10
Yeah. So what you are doing is similar to Bancor, right? Or even Iconomi (even if its not smart contract based) Or how does it differ? fractastical
due to the not particularly high quality of solidity among other things wires
@dr10 Ethereum/EVM (although we have worked on formal languages/DSL that compile down to EVM code, meaning we could target different blockchains as they appear) (edited) fractastical
I think we are like the upmarket version of those things
insofar as we are actually bringing in large money from the existing fiat ecosystem
around existing real partner funds
so its less hypothetical
more real assets dr10
Okay so you have already established partners and relationships?
Your concept reminds me partly of bancor, yet you are longer around as I think. How does the calculation of a crypto fund work? It is smart contracted, so will there be some kind of algorythm? wires
@dr10 comparable to Bancor, but not so similar as it seams at first dr10
And is it only limited to Eth tokens or also other currencies?
What are the differences to Bancor @wires pieperp
there are requirements that major fiat investors have, that so far the industry does not abide by (compliance, transparency, etc.), yet we are committed to develop. www.swarm.fund/whitepaper wires
Bancor’s main innovation is this way to create liquidity and tap in on the “long tail” dr10
You should update your FAQ section. The provided whitepaper there says something about rescuing the rain forest
that is match up buyers/sellers
“rescuing the rain forest” = def one of the things we want to do…
safe the planet, bro dr10
probably, but I didnt really understand what this was about pieperp
update to materials on website coming the next few days. dr10
So anybody can propose a project? Or how does this actually work at all? pieperp
Animated intro video: https://drive.google.com/file/d/0B9M9FFmDPYqGUEZNNi1IX1ZRSVk/view dr10
What will I see and do on your platform pieperp
Ultimately, yes. After we go through the first 6-9 months of curated pilot projects wires
(I’ll answer you Q about bancor~swarm~wings similarities and differences, give me a second to close of some things regarding status.im crowdsale #FOMO and collect my thoughts) aquazi
nobody here with some experience on the bittrex api? dr10
@wires alright :smile: dr10
so what kind of projects are there yet and who proposed them? just to have an image what goes on @ swarm.funds (edited) 2 replies Last reply today at 6:21 PM View thread dr10
maybe 1-2 examples pieperp
dr10: https://arkecosystem.slack.com/files/pieperp/F5XED29M5/screen_shot_2017-06-20_at_9.09.25_am.png mike
can you go into a little detail on how the distressed real estate works? pieperp
sure: our syndicate partner is a fund that has been operating an data-driven & automated model to identify, buy, and rent distressed real estate from Chapter 7 filings. Highly attractive cash model of underutilized assets. dr10
so its a software that looks through data and decides which projects, assets etc, could be interesting within a fund? pieperp
yes. plus an extremely high degree of automation. very small initial investments, which is returned within 10-12 months and makes 4x+ returns over it's lifetime. dr10
When I buy Bitcoin, Stratis and Ark and put them into a fund. Its still highly volatile. You have a solution for this? pieperp
asset-backed tokens should be more stable based on the underlying value. wires
@dr10: this “open project proposal” could work very similar fashion to wings.ai, wings might even be considered an “oracle” for our system, so if the project passed the scrutiny of the wings.ai system and is listed there, this could be something the fund invests in (decided by liquid democracy vote) (edited) pieperp
we are trying to create asset classes that give the market a different risk-reward profile and alternatives to invest under portfolio perspectives. wires
@dr10 but as @pieperp is saying, we will start with some curated classes for which we already have some funds/interested parties, processes etc dr10
I see... so its like "secure asset" "medium secure" "risky but high profit" assets, right?
right, so bitadel would be the crypto hedge fund managing those classes (edited) dr10
So I dont know how actual your blog and FAQ was: pieperp
plus are more attractive to non-crypto investors as they have a higher efficiency in operating them and can therefore be more aggressive in "pricing". dr10
When I've read, "can be deployed as multiple chains and stake-weighted delegated votin"g and of course Mike Doty advising Swarm.Funds I had to think of this: Will Swarm Fund be smartbridged to ARK?
Maybe I misunderstood it totally fractastical
hmmm, you mean for the dpos stuff? dr10
yeah basically its multiple side chains, stake weighted delegated voting... so thats what I asked to myself fractastical
i've thought about this for a long time but i don't know if i know enough low level technial knowledge about how ark works to know under what cirucmstances stuff
i did think about similar things with respect to DASH/PIVX
there are a few interesting possibilities there
most blockchains are currnetly using a top down approach for validation
but the ultimate dpos is actually bottom up wires
@dr10 I am one of the people behind internetofcoins.org which is developing a protocol to bridge incompatible blockchains using a novel idea of “hybrid assets”, it’s more longtail thing, we will start of with the basics, be @fractastical and me are definately thinking about those things… fractastical
so if you can peer with a governance mesh that is dynamically formed at the device level that's very interesting dr10
So how does this cross-currency investing work? I can put FIAT money into a crypto asset or can I invest crypto in a real estate asset? wires
we split that up:
crypto => swarm.fund
fiat => bitadel managed fund dr10
@wires okay I see. Ark is internet of blockchains too... so thats why I asked :smile: wires
these are the pools in the diagram I just posted dr10
@dr10 ah cool, I wasn’t aware.. :blush: kinda too busy to read all the whitepapers, but I’ll have a deepdive one of these days (edited) dr10
@wires sure, I made a video about that :smile: fractastical
oh does Ark have a tokenized asset protocol built in as well? wires
@dr10 linkplz? fractastical
@dr10 link us the video? dr10 https://www.youtube.com/watch?v=CgD4WqHJFtU
I am honest, I still didnt exactly get the differences to Bancor or Iconomi dr10
I lack the technical understanding to be honest
but I see this three projects as very similar. But probably the details are much different
but I cant see it right now.. maybe you can point that more out? :slightly_smiling_face: wires
how much has internetofcoins raised so far? wires
~ $1.3m I think tlehes
@dr10 Bancor is more of a token platform whereas swarm is more focused on the governance and legal framework to link real world assets to Crypto investors. wires
^ right pieperp
Bancor is purely a tokenization process. We have developed an entire process (legal and technical) to bridge into real world assets being owned and governed by crypto. dr10
but didnt you say the real world asset are split from crypto investments? wires
Ark's tokenized assets are separate ArkChains which are cloned and configured using the main Ark code. These run as separate chains bridged to Ark. Applications can then be built on top of these separate chains. wires
give me a second i’ll quickly sketch a picture mike
given the limitations of Solidity/EVM, what would you rather see as an alternative? tlehes
Swarm is managing both crypto assets as well as Fiat assets. The governance layer doesn’t distinguish between the two. The underlying funds are a mix of Crypto only, Crypto+Fiat, Fiat only. (edited) mike
can you go into some detail on the trading algos/AI Bitadel is using? dr10
ahh okay... so if I invest in Swarm, I wouldnt only invest in crypto combinations but at the same time (or can I chose?) in a mix of crypto/Fiat or only Fiat?
that Means I could combine Bitcoin and Dollar?
as a Hedge? tlehes
We are building the market infrastructure for Traders, not mandating which algos they should use. It’s an open platform, similar to Quantopian for public stocks. (edited) pieperp
We are building the "AWS" for market traders, actually empowering them with data services, reporting, etc. and ultimately capital. So it's less about our trading algios, but more about identifying the experts. At the same time it's a "superhighway" for fiat investors to invest. wires
uploaded this image: sketch-for-dr10-ark.png Add Comment wires
@dr10 I tried to repurpose our picture to answer your question, I’m simplifying a bit here, but roughly it looks like this
the big fund is made up out of smaller funds, holding different asset classes
obv. different classes require different processes (buying a house, vs trading OTC comodities, vs trading cryptos) dr10
I see. So its diversified in different branches, which makes the value less volatile, right?
if that is the main reason... pieperp
You could summarize Swarm+Bitadel as "market infrastructure" for investments. Think back to financial markets in 1985, we are building infrastructure structure that brings it to today's market standards. (edited) wires
bitadel software and infra is there to provide the information and reporting to have traders deal with it , and also to ensure that the votes of the L.D./swarm governance funds are respected numba1enigma
what regions can swarm accept fiat deposits on the platform 1 reply Today at 6:45 PM View thread tlehes
@dr10 The Swarm token gives you voting rights and access to underlying sub-funds, governed by Swarm. The Sub-funds governed by Swarm are the the actual assets you invest in. Over time, you hopefully will have a broad choice of Fiat/Crypto/Mixed subfunds to choose from, wires
@numba1enigma we will run two fundraisers: a crypto ICO and a longer running fundraiser for the (fiat only) “big fund” (edited) pieperp
numba1enigma: globally, including US with some restrictions numba1enigma
does swarm fund have existing compliance to take deposits from users today. i.e. deposit from a bank like chase wires
@numba1enigma but at a later stage we will be able to take crypto in as aswell to the crypto fund
before the cyrpto ICO starts we run a bitcoin suisse round numba1enigma
is the crypto fund a collection of tokens swarm creates like a mutual fund an individual can buy?
or can indiciduals make their own basket of tokens pieperp
for now we are working with bitcoinsuisse on that, but are having conversations with different market constituencies. this will be a part of the efforts in the next 12 months. dr10
The reputation system is something as "giving a like" to interesting projects that evolve positively? (If its still actual) pieperp
it's not meant to be a mutual fund. Each SPV/subfund can involve seperate crypto and fiat investors, while being governed by Swarm platform. wires
(the $B fund will be filled over 2 years or so… depending on how well “we”/LD do) (edited) numba1enigma
what is swarm oppionion of index funds and the ability to get them traded on multiple markets 1 reply Today at 6:50 PM View thread wires
bitadel decides on this together with LD voting = swarm intelligence (edited) mike
Hi sebastian, melon tlehes
@dr10 The reputation system is used in reference to which sub-fund managers that are performing well as are building a track record on the platform. pieperp
numba1enigma: we don't discriminate on the opportunities. ultimately it's about the community showing interest in certain opportunities, endorsing them and those in return proving their value/credibility. wires
@dr10 there is a lot of reporting coming from bitadel infrastructure that reflects back on both the performance of subfunds, traders, fundraisers, and also on how well the LD votes count… sebastian
hi @mike it was great to talk with you last night, very interesting ideas for ark numba1enigma
SPV can combine assets of say typical VC's and bitcon millionars to launch a project in any space? 1 reply Today at 6:52 PM View thread dr10
ah ok, so its like these daytrader platforms where you can follow daytraders who are listed chronogically by % success rate tlehes
@dr10 The voting for projects is based on quorum&majority, liquid democracy (edited) pieperp
numba1enigma: absolutely, that's the goal. watch the video :wink: https://drive.google.com/file/d/0B9M9FFmDPYqGUEZNNi1IX1ZRSVk/view wires
@numba1enigma more or less, yes, but probably a wings.ai like mechanism is used to propose the SPV to the swarm token hodlers and must pass LD vote mike
thanks seb, enjoyed as well. wires
and swarm will then setup the spv, etc… (edited) mike
what business entity and jurisdiction is Swarm Fund using? numba1enigma
any parallels of swarm to iconomi cofound.it wires
you can also think of swarm as otonomous for spv’s, but there is more to it tlehes
@mike There are different jurisdictions suiting well for different purposes. We are looking at the best solution for each sub-fund category. wires
cofound seems more like wings.ai (edited)
than swarm fractastical
I think Iconomi has some similar properties, but we are working with larger more established partner funds
that are already profitable wires
and wings.ai is much like the “propose a subfund / asset class / project in asset class / etc” procedure anton
Iconomi is also more of a hub and spokes model focusing on building enterprises tlehes
Thanks for participating, happy to answer any follow up questions. fractastical
Live Q&A with Coinfund starting now https://www.youtube.com/watch?v=5PfoBJ8zFOo mike
We are at the one hour mark, but can continue as long as Swarm Fund team members and Ark comunity members would like to continue.
Thanks you to everyone for participating. dr10
Thanks for the Ama! wires
enjoyed talking to you guys and will lurk around on this channel, seems very interesting, ark (edited) pieperp
was a pleasure! sebastian
thanks for organizing mike! dr10
see Joel, Philipp, Jelli, Timo live on the youtube link now, busy day!
BTC historical volatility. As per SP500, we computed the historical volatility as the standard deviation of returns (30-day window) for the perpetual contract. We also computed the exponentially weighted moving average (EWMA), building on our previous article regarding historical volatilities . BTC options implied volatility The BitMEX 30 Day Historical Volatility Index tracks the rolling 30 day realised volatility by using daily 10:00 GMT to 12:00 GMT 1 minute Time Weighted Average Prices on Bitfinex for Bitcoin / USD. The product is quoted in annualized volatility % points and investors make or lose 0.01 Bitcoin per 1% point move. This is an updated, more robust, and open source version of my 2 previous scripts : "Implied Volatility Rank & Model-Free IVR" and "IV Rank & IV Percentile". This specific script provides you with 4 different types of volatility data: 1)Implied volatility, 2) Implied Volatility Rank, 3)Implied Volatility Percentile, 4)Skew Index. The standard deviation of daily returns for the preceding 30- and 60-day windows. These are measures of historical volatility based on past Bitcoin prices. When the Bitcoin options market matures, it will be possible to calculate Bitcoin's implied volatility, which is in many ways a better measure. How do we calculate the volatility? It uses the standard deviation of the daily open price for the preceding 30-, 60-, 120- and 365-day windows. These are measures of historical volatility based on past Bitcoin and Litecoin prices. Which sources are used? Bitpremier uses the CoinDesk API for querying historical Bitcoin data used in the ...