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General Discussion / Principles of options trading on the Bitshares Exchange
« on: January 05, 2019, 07:46:00 pm »
Bitshares Cryptocurrency Exchange allows you to create options on the prediction market.
There are 4 types of assets in the Bitshares blockchain:
- Core asset, it is the BTS coin;
- Smart Asset - pledged assets, the creation of which requires the pledge of BTS. These are such assets as bitUSD, bitCNY, etc.
- UIA assets. Without pledged assets, secured only by word of mouth of their creator. These are assets such as OPEN. BTC, etc.
- Assets of prediction market.
Assets of prediction market
Further in this article we will talk about assets in the prediction market. In particular about options.
The assets of the prediction market are pledged assets, i.e. To create 1 coin of an option, it is required to give 1 coin of BTS to pledge. The number of collateral options differ from smart assets. In the latter, in order to create 1 coin, a smart asset needs to be credited with at least 1.75 BTS coins.
It should be understood that in this article we will talk about options, but coins with a different meaning can be created in the market of prediction of Bitshares. For example, the coin on the outcome of the event: the victory of the Democrats or the Republicans.
Expiration date
The fact is that assets in the prediction market have their expiration date. If today is January 1, 2019, then such a coin will end its existence, for example, June 1, 2019. This implies that on June 1, 2019, some event will occur.
The coin itself in the prediction market has no feeds. However, on the day of the event, the creator of the coin (or committee) will publish feeds for the coin. It will be either 0 or 0.5 or 1.
That is, some event with three outcomes is assumed. Let's say a football match. If the first team wins - the coin will be assigned the feed 0, a draw - 0.5. If the second team wins - 1.
Let's go back to the options
An example of an option that you can see - CALLCNY05MARCH19
At the moment the option is trading at a price of 0.18 BTS
How to trade the option:
This option has an expiration date - March 15, 2019.
This means that on this day, the option will be assigned the feed - 0 or 1.
The option has a Strike price of 0.5 CNY. This means that if on March 15, 2019 the price of the base asset BTS is higher than or equal to 0.5 CNY, then the option will be assigned the feed - 1. If at the expiration date the price of BTS is less than 0.5 CNY, then the option will be assigned the feed - 0.
Trading options:
1. If you think that on March 15, 2019, the price of the BTS will be higher than 0.5 CNY, you are buying the option at the current price (0.18 BTS as of 01/03/2019)
Let's give an example:
Today you bought 10,000 options at a price of 0.18 BTS. This means that you have invested 1,800 BTS. On the expiration day, the price of the underlying asset (BTS) is 0.50 CNY or higher. So your option is in the money. You set up and withdraw the deposit, which is 1 BTS for every 1 option. That is, you are changing your 10,000 options per 10,000 BTS.
As we see in this case, your profit is 8200 BTS, or 555%.
2. If you think that on March 15, 2019 the price of a BTS will be lower than 0.5 CNY, you are selling an option at the current price (0.18 BTS as of January 3, 2019)
To sell an option you need, as in the case of a smart asset, to borrow it.
You pledge 10,000 BTS and get 10,000 options. Sell them at 0.18 BTS. Get 1800 BTS.
On the expiration day, the price of the underlying asset (BTS) is 0.49999 CNY or lower. So your option is in the money. He will be assigned a quote of 0. In essence, this means that you have 10,000 options, the price of which is 0. In other words, you must return 0 options.
You set up and withdraw the deposit, which is 1 BTS for every 1 option. That is, you return your 10,000 BTS.
As a result, you received 1,800 BTS from the sale of an option and returned your pledge to 10,000 BTS. Your profit was 1800 BTS, or 18%.
Your comments are important. I hope this article will help you understand the financial possibilities of the Bitshares Exchange.
Best
There are 4 types of assets in the Bitshares blockchain:
- Core asset, it is the BTS coin;
- Smart Asset - pledged assets, the creation of which requires the pledge of BTS. These are such assets as bitUSD, bitCNY, etc.
- UIA assets. Without pledged assets, secured only by word of mouth of their creator. These are assets such as OPEN. BTC, etc.
- Assets of prediction market.
Assets of prediction market
Further in this article we will talk about assets in the prediction market. In particular about options.
The assets of the prediction market are pledged assets, i.e. To create 1 coin of an option, it is required to give 1 coin of BTS to pledge. The number of collateral options differ from smart assets. In the latter, in order to create 1 coin, a smart asset needs to be credited with at least 1.75 BTS coins.
It should be understood that in this article we will talk about options, but coins with a different meaning can be created in the market of prediction of Bitshares. For example, the coin on the outcome of the event: the victory of the Democrats or the Republicans.
Expiration date
The fact is that assets in the prediction market have their expiration date. If today is January 1, 2019, then such a coin will end its existence, for example, June 1, 2019. This implies that on June 1, 2019, some event will occur.
The coin itself in the prediction market has no feeds. However, on the day of the event, the creator of the coin (or committee) will publish feeds for the coin. It will be either 0 or 0.5 or 1.
That is, some event with three outcomes is assumed. Let's say a football match. If the first team wins - the coin will be assigned the feed 0, a draw - 0.5. If the second team wins - 1.
Let's go back to the options
An example of an option that you can see - CALLCNY05MARCH19
At the moment the option is trading at a price of 0.18 BTS
How to trade the option:
This option has an expiration date - March 15, 2019.
This means that on this day, the option will be assigned the feed - 0 or 1.
The option has a Strike price of 0.5 CNY. This means that if on March 15, 2019 the price of the base asset BTS is higher than or equal to 0.5 CNY, then the option will be assigned the feed - 1. If at the expiration date the price of BTS is less than 0.5 CNY, then the option will be assigned the feed - 0.
Trading options:
1. If you think that on March 15, 2019, the price of the BTS will be higher than 0.5 CNY, you are buying the option at the current price (0.18 BTS as of 01/03/2019)
Let's give an example:
Today you bought 10,000 options at a price of 0.18 BTS. This means that you have invested 1,800 BTS. On the expiration day, the price of the underlying asset (BTS) is 0.50 CNY or higher. So your option is in the money. You set up and withdraw the deposit, which is 1 BTS for every 1 option. That is, you are changing your 10,000 options per 10,000 BTS.
As we see in this case, your profit is 8200 BTS, or 555%.
2. If you think that on March 15, 2019 the price of a BTS will be lower than 0.5 CNY, you are selling an option at the current price (0.18 BTS as of January 3, 2019)
To sell an option you need, as in the case of a smart asset, to borrow it.
You pledge 10,000 BTS and get 10,000 options. Sell them at 0.18 BTS. Get 1800 BTS.
On the expiration day, the price of the underlying asset (BTS) is 0.49999 CNY or lower. So your option is in the money. He will be assigned a quote of 0. In essence, this means that you have 10,000 options, the price of which is 0. In other words, you must return 0 options.
You set up and withdraw the deposit, which is 1 BTS for every 1 option. That is, you return your 10,000 BTS.
As a result, you received 1,800 BTS from the sale of an option and returned your pledge to 10,000 BTS. Your profit was 1800 BTS, or 18%.
Your comments are important. I hope this article will help you understand the financial possibilities of the Bitshares Exchange.
Best
