Cryptocurrency Trading and Options Cedric Jeanson, Founder
TABLE OF CONTENTS 1. Ltd BITSPREAD 1.1. Mission 1.2. Business Model 1.2. Services 1.4. Performance 1.3. Next Steps 2. Basic Option Trading 2.1. Basic Strategies 2.2. Advanced Strategies
Mission
, ENHANCING LIQUIDITY ON EXCHANGE Major Exchanges 10% of the total daily volume concentrated on a small number of major exchanges with a low liquidity on order book Leading to high volatility on exchange traded price indices MISSION Average 24h volume Liquidity provider 70,000 BTC ($35M) On Exchange Market-Maker Small and Start-up Exchanges Average 24h volume 2,000 BTC OTC Markets Average 24h volume 630,000 BTC ($315M) issues for Small and Start-up exchange penetration $500 BTC/USD issues for Merchant pricing slippage Issues for currency adoption and price appreciation
, ENHANCING LIQUIDITY ON EXCHANGE MISSION
, ENHANCING LIQUIDITY ON EXCHANGE MISSION
Business Model
, ENHANCING LIQUIDITY ON EXCHANGE BUSINESS MODEL Adding liquidity and reducing volatility via arbitrage market-making strategies. First round of seeding capital (Value 500k) Founded in April 2014 in the UK
Services
, ENHANCING LIQUIDITY ON EXCHANGE Market-Making Schemes (Exchanges) SERVICES Ltd Bid, Ask Exchange
, ENHANCING LIQUIDITY ON EXCHANGE Crossing Block-Order On Exchanges (Miners, Investors, Merchants) SERVICES Bid Ask Ltd Exchange Counterparty
, ENHANCING LIQUIDITY ON EXCHANGE Cryptocurrency Borrowing (Miners, Investors, Wallet providers) SERVICES Ltd 5% pa Counterparty BTC
Performance
STRONG MARKET NEUTRAL EUR PERFORMANCE (PNL EACH DAY UP) Performance PERFORMANCE +9.35% +33.14% annualized Bitcoin Performance -23.37%
Next Steps
NEXT STEPS Option Market-Making BUSINESS MODEL Second round of funding Multi-Strategy Specialist Arbitrage Strategy Fund Adding liquidity and reducing volatility via arbitrage market-making strategies. First round of seeding capital (Value 500k) Founded in April 2014 in the UK
LAUNCH OF THE CRYPTOCURRENCY ARBITRAGE STRATEGY FUND (January 2015) NEXT STEPS Manager Portfolio Manager FCA Registered Investment Manager $1.5Bn AuM THE CRYPTOCURRENCY ARBITRAGE STRATEGY FUND (ISLE OF MAN SPECIALIST FUND) SPV1 - Market Neutral Arbitrage SPV2 - Smart Long Beta Arbitrage SPV3 - Smart Short Beta Arbitrage SPV4 - Statistical Arbitrage
SECOND ROUND OF FUND RAISING (January 2015) Seeking 500k for 20% under Tax Efficient Schemes for a selection of investors, invested in: NEXT STEPS Infrastructure Multi-Exchange clearing Alternatives Currencies Market-Making Option Market-Making Recruitment
Option Trading Basic Strategies
WHY CALL OPTIONS? BASIC OPTION TRADING Buy - Break Entry Barriers, Market Access - Not enough Bitcoin on the Market, Liquidity issue (ITM) - Long Exposure (OTM, ITM, OTM) - Cash Extraction / Small Investment (ATM) - Leverage (OTM) Sell - Break Entry Barriers, Market Access - Not enough Bitcoin on the Market, Liquidity issue (ITM) - Additional return (OTM)
WHY PUT OPTIONS? BASIC OPTION TRADING Buy - Break Entry Barriers - Not enough Bitcoin on the Market, Liquidity issue (ITM) - Hedge long exposure (ATM) - Take a short view (ITM, ATM, OTM) - Leverage (OTM) Sell - Break Entry Barriers - Not enough Bitcoin on the Market, Liquidity issue (ITM) - Additional return (OTM)
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Stop the Downward Price spiral and Recycle the Bitcoin in the Ecosystem for the same value Seeder Funds Buy + Early Adopters Sell - Miners Sell Merchants - Sell - BASIC OPTION TRADING
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Wallet Value lock BASIC OPTION TRADING Wallet BTC Put Insurance Lock fiat EUR value + + =
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Wallet Saving Accounts BASIC OPTION TRADING Wallet BTC + Lending Fee Revenues + Additional Return =
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Consumer Price Lock Differentiation factor for Payment processors BASIC OPTION TRADING Purchase BTC + Put Insurance + BTC Price lock for the Consumer =
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Exchange Price Lock Differentiation factor BASIC OPTION TRADING Buy or Sell Orders + Price Lock function + Lock Trading Price for a given size =
BENEFITS OF OPTIONS IN THE CRYPTOCURRENCY ECOSYSTEM Miner Inventory Value locks BASIC OPTION TRADING Mined BTC Put Insurance Lock Mined BTC value + + =
BUYING OPTIONS VERSUS FUTURES? Futures Pay the initial Margin ~ 30% BASIC OPTION TRADING Options Pay a small Premium
CALL OPTIONS INDICATIVE PRICING BASIC OPTION TRADING
PUT OPTIONS INDICATIVE PRICING BASIC OPTION TRADING
CALL OPTIONS LEVERAGE EXAMPLE (BUY CALL 350 EXPIRY 28/02/2015) Bitcoin Up +66.67% Leverage 10x BASIC OPTION TRADING Call Up +645.80% Date Today At Expiry Bitcoin Price (EUR) 300 500 66.67% Strike Price (EUR) 350 350 Expiry Date 28 Feb 15 28 Feb 15 Option Price (EUR) 20.11 150.00 645.80% Option Price (%) 6.70% 30.00%
CALL OPTIONS ADDITIONAL RETURN EXAMPLE (LONG BITCOIN + SELL CALL 350 EXPIRY 28/02/2015) Bitcoin Up +16.67% Total Return Up +23.37% BASIC OPTION TRADING + Sold Call expired worthless Date Today At Expiry Bitcoin Price (EUR) 300 350 16.67% Strike Price (EUR) 350 350 Expiry Date 28 Feb 15 28 Feb 15 Option Price (EUR) 20.11 0.00-100.00% Option Price (%) 6.70% 0.00%
PUT OPTIONS HEDGE LONG EXPOSURE EXAMPLE (BUY PUT 350 EXPIRY 28/02/2015) Bitcoin Down EUR 200 Insurance +12.42% BASIC OPTION TRADING + Put Up EUR 200 Date Today At Expiry Bitcoin Price (EUR) 500 300-266.67% Strike Price (EUR) 500 500 Expiry Date 28 Feb 15 28 Feb 15 Option Price (EUR) 62.07 200 +222.22% Option Price (%) 12.42% 66.67%
Option Trading Advanced Strategies
CALL OPTIONS COST EFFICIENT EXAMPLE (BUY CALL-PSREAD 300-350 EXPIRY 28/02/2015) Call 300 12.42% Call-Spread 300-350 5.71% Save 6.70% Bitcoin Up +16.67% Call-Spread 300-350 Up +191.89% Date Today Today Today Bitcoin Price (EUR) 300 300 300 Strike Price (EUR) 300 350 300-350 Expiry Date 28 Feb 15 28 Feb 15 28 Feb 15 Option Price (EUR) 37.24 20.11 17.13 Option Price (%) 12.42% 6.70% 5.71% OPTION TRADING ADVANCED STRATEGIES Date At Expiry At Expiry At Expiry Bitcoin Price (EUR) 350 350 350 Strike Price (EUR) 300 350 300-350 Expiry Date 28 Feb 15 28 Feb 15 28 Feb 15 Option Price (EUR) 50.00 0.00 50.00 Option Price (%) 14.28% 0.00% 14.28%
PUT OPTIONS COST EFFICIENT EXAMPLE (BUY PUT-PSREAD 500-400 EXPIRY 28/02/2015) Put 500 12.42% Put-Spread 500-400 8.54% Save +3.87% Bitcoin Down -20.00% Put-Spread 500-400 Up +134.08% Date Today Today Today Bitcoin Price (EUR) 500 500 500 Strike Price (EUR) 500 400 500-400 Expiry Date 28 Feb 15 28 Feb 15 28 Feb 15 Option Price (EUR) 62.07 19.35 42.72 Option Price (%) 12.42% 3.87% 8.54% OPTION TRADING ADVANCED STRATEGIES Date At Expiry At Expiry At Expiry Bitcoin Price (EUR) 400 400 400 Strike Price (EUR) 500 400 500-400 Expiry Date 28 Feb 15 28 Feb 15 28 Feb 15 Option Price (EUR) 100.00 0.00 100.00 Option Price (%) 25.00% 0.00% 25.00%
EXOTIC OPTIONS TAYLORED MADE TO YOUR RISK PROFILE OPTION TRADING ADVANCED STRATEGIES
Disclaimer
The prices of derivative instruments, including futures and options prices, are highly volatile. Price movements of forward contracts, futures contracts and other derivative contracts are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies. In addition, governments from time to time intervene, directly and by regulation, in certain markets, particularly markets in crytocurrencies. Such intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, cryptocurrency price fluctuations. Any advice contained in this presentation is of a general nature only and does not constitute personal financial product advice, nor any solicitation to buy any financial product. In preparing the advice no account was taken of the objectives, financial situation or needs of any particular person. Therefore, before making any investment decision, readers should consider the appropriateness of the advice with regard to their particular objectives, financial situation and needs.