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are bitcoin options coming?

  #11 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

The link exists because BTC on cash markets like GDAX can trade in very small increments of 1 penny. The futures have a bigger step size. This creates an instant risk free profit for HFT traders in theory.

In theory, an HFT wanting to arb the contract will offer on the futures contract. They will then hedge their risk in the cash market by buying the underlying. This will transfer the demand from the futures to the cash. There are also interest rate plays. The idea is that the futures product will trade at a premium to the cash. So, you buy the cash and short the future and capture the interest rate by holding until expiry. However, you may need to sell some of your BTC because you won't be able to use it as margin for your short position if the market rallies and/or you may need to produce margin.

GH239 View Post
I'm fairly new to futures and don't trade bitcoin but I'm interested to see how a new market such as this takes place.
I've read it may be an effective way to keep a ceiling on prices if the futures market is heavily shorted, but I have no idea how the connection between the futures price and bitcoin price is actually established. From what I've read the market is cash settled, so I don't know where the "physical" link between the futures market and the bitcoin world exists...


Last edited by tpredictor; December 5th, 2017 at 09:19 AM.
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