Assume the price of bitcoin is currently $36,190. As Micro Bitcoin futures are 1/10th the size of one bitcoin, the notional value of one Micro Bitcoin futures price would be $3,619. This represents approximately 36% of the trader’s bitcoin exposure. The trader is looking at purchasing the 36,000 put. If the put option finishes in-the-money, that would give the trader the right to sell the Micro Bitcoin futures at $36,000.
As the number of options needed to hedge one futures contract is determined by the option delta, assume the theoretical delta of the option is -.46 or a -46 delta. The trader purchases two 36,000 puts to hedge their exposure to a potential downside price move in bitcoin. The total delta of the position is -92. This is the delta upon the initiation of the trade but will change as time, volatility and price of the underlying changes. In theory, this represents 92% of one futures contract ($3,619) or the equivalent of approximately $3,330. This partial hedge protects about 36% of the trader’s physical position if the price of bitcoin drops dramatically.
The theoretical premium of one put is 1,965.60. The trader purchases two put options for a total of 3,931.20 (2 x 1,965.60). With the .10 contract multiplier, this equates to $393.12. Assume, volatility is currently at 60% and there are 21 days until the option expiration.
Volatility: 60%
Theoretical Delta: -92 (-.46 x 2)
|
DTE |
Bitcoin futures Price ($) |
Option Premium (pts) |
Option Premium ($) |
P&L Underlying position |
P&L options |
Total P&L |
|
21 |
36,190.00 |
3,931.20 |
393.12 |
|
|
|
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