Hi, I'm looking to buy some bitcoin puts, and saw that Deribit only transacts in bitcoin, not fiat. Since the put options are in dollar amounts, I can only assume what happens is if the put option expires in the money, then the difference between the strike and mark price is paid using whatever the current value of bitcoin is. For example, if you have a put option for 5k put, and the option expires when markprice of bitcoin is 4k, then you get .25 bitcoin.
And looking at the margin requirements for a short put from https://www.deribit.com/pages/docs/options, Maximum (Maximum (0.15 - Out of the Money Amount/Underlying MarkPrice, 0.1 )+ markprice_option, Maintenance Margin), I can only imagine what happens if someone no longer has enough margin to underwrite their put, then they get margin called and the put contract expires and then the holder of the option would get whatever is margin called.
However, what would happen in the event of a sudden crash? Because you're using bitcoin to settle, as the price of bitcoin goes down, you'd need nonlinearly more bitcoin to settle as the price drops, as you'd need at least abs(markprice - strike_price) / markprice to underwrite the shorts.
For example, given a strike price of 3k, if bitcoin is worth 2k, you'd need .5x margin for every contract ((2000 - 3000) / 2000) == .5. Then at a markprice of 1k, you'd need 2x margin, and at 500, you'd need 5x margin.
I'm going to assume no one on Deribit has a margin balance of 5x bitcoin for every put option that they overwrite. Given this math, in the event of a bitcoin crash from 5k to 500 dollars, if I'm holding put options for 3k, is it safe to assume that along the drop the sellers of my put options would get margin called and I would get their bitcoin as the price dropped, but then at the every end, I would just be holding a bunch of now very cheap bitcoin?
No comments:
Post a Comment