Derivatives have become a territory that exchanges in the currency circle are vying for. Whether it is traditional complex derivatives such as options or innovative derivatives with currency circle characteristics such as leveraged tokens, they are relatively new to most users.

Naturally, there are huge opportunities. The opportunities for exchanges lie in turnover, and the opportunities for users come from pricing problems caused by insufficient liquidity in the early stage and some opportunities to exploit loopholes in the understanding of rules.

Speaking of derivatives innovation,FTX released the MOVE contract before the National Day, an investment product that allows users to bet on volatility, regardless of whether they are bullish or bearish on Bitcoin.

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For example, the price of Bitcoin yesterday was 8000, and when it is delivered today, the delivery price becomes 8200, no matter what kind of large fluctuations the price has experienced, the final delivery price will be 200 yuan.

Among them, the buyer is the side that is long and fluctuating. If it buys at a price lower than 200 yuan on the same day, it will make a profit at the time of delivery. The seller is the side that is short and fluctuating. Get profitable.

Schematic diagram of the profit and loss of buyers and sellers:

Assume that the previous day’s bitcoin benchmark price is S, the current bitcoin price is P, the delivery price of bitcoin is St, the current MOVE contract price is X, the expected delivery price is |PS|, and the final delivery price is |St- S|.

Buyer P&L Example:

The buyer's cost is X,

Example chart of seller's profit and loss:

The seller and the buyer are opposite, and the net gain is X-|St-S|.

For a more intuitive experience, the trading interface is as follows:

The mark price is simply understood as the current MOVE price, and the bet price is the benchmark price measured by the absolute value of today's fluctuations. The expected delivery price is the absolute value of the index price minus the bet price.

Some rules added:

1. The starting price and delivery price are determined by the weighted average price of the previous hour to avoid being affected by the sharp fluctuation of the underlying underlying price.

2. The MOVE buyer's income is similar to that of futures: buying and selling MOVE contracts requires a deposit, which is roughly the same as that required for a BTC futures contract.

That is, although the MOVE contract may only be $100, it is necessary to pay a deposit equivalent to 1 bitcoin. Assuming a BTC8500, you can open 10 times leverage, and you need a deposit of $850 to buy a MOVE contract. When there is no time value, other The income is basically the same as that of futures.

Buying MOVE does not give full play to the high odds characteristics of call options. This should be related to the principle behind FTX's synthesis of MOVE.

3. There will be two move contracts at the same time, one for the current day and one for the next day.8:00 a.m. Beijing time is a new day.

4. The handling fee is more expensive: the handling fee is the same as the opening futures,For example, a $100 move contract also needs to pay a handling fee of $8500*0.07%=$5.95.

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Unlike ordinary options, since the MOVE contract only bets on BTC fluctuations in one day, it is difficult for volatility to be transmitted to the price.

Therefore, relatively speaking, the influence of various Greek letters in options on the MOVE contract is very limited, and the main contradiction is the change of absolute volatility.

For example, the MOVE price is 200 at 8:00 a.m., since the price at 8:00 a.m. is the starting time, and the expected delivery price is 0, there is a price difference of 200 yuan between the MOVE price and the expected delivery price, assuming that the BTC price is not too large , the MOVE price will gradually drop to get closer to the expected delivery price.

The picture above is a graph of MOVE time value decay from September 27th to October 7th. You can see that the time value gradually decreases over time.

In the first few days when the MOVE contract was launched, BTC volatility was high, the initial price of the MOVE contract was high (generally above 200), and the time decay was slow (the time value often showed a linear downward trend). With the decrease of BTC volatility and the deepening of users' understanding of MOVE, the initial value of the MOVE contract has decreased (generally below 150), and the time value has almost decayed in half a day.

1) Profit source:

The seller has two sources of profit, one is to collect time value, and the other is the income from the absolute fluctuation drop.

For the time value, the larger the "X-|SP|", the higher the time value. The goal of this part of the seller is to eat up the value of time.

When the time value is at a low level, shorting MOVE is actually a bet that futures will fluctuate in the opposite direction.

Taking the MOVE contract on October 5 as an example, the relevant price changes are as follows:

2) When to be a seller?

For users who aim to earn time value, the higher the XS, the higher the potential income of being a seller, and the lower sensitivity to BTC price fluctuations (low delta), the higher the safety cushion. Therefore, when the MOVE contract opens on the same day and when the next day's contract is at a high level, it is a better time for the seller.

For users who earn volatility callbacks, there is no substantial difference from the subjective timing of futures rebounds or high short positions, but it should be noted that the price of the MOVE contract must also be at a high level at this time.

3) How does the seller do risk control?

For users who aim to earn time value, since the best short position is at the opening of the market, the most favorable situation is that the delivery price is expected to remain low and the contract price X keeps approaching 0. But as X approaches 0, while the value of time decays, its own risk is also increasing.

Therefore, as a seller, we must not only consider the balance between time value and risk accumulation, but also consider the risk when the absolute value of volatility rises rapidly.

1) Profit source:

The buyer's profit mainly comes from the increase in the absolute value of volatility. Therefore, low time value is the premise. When the expected delivery price is almost the same as the actual price, the Delta is close to 1, and the price fluctuation of the MOVE contract is basically synchronized with the BTC price.

However, considering the design of the margin, long MOVE cannot have high odds like doomsday options, and it is not suitable for users with high risk appetite.

2) When to be a buyer?

In any case, it is safer to be a buyer when X is small.

3) It is a good substitute for futures when chasing ups and downs:

Because when BTC fluctuates sharply, the price of MOVE is basically synchronized with BTC. However, chasing higher futures, if the market lures more (or less) and suddenly turns down, chasing higher futures will result in substantial losses. And if you are long MOVE, if the price drops to a certain extent, it will reduce losses or even make money.

To give an example: the figure below is a comparison of the BTC price on October 11, the MOVE1011 price, and the difference between the BTC price minus the benchmark price of the day (that is, the expected delivery price).

BTC rose above 8800 at the highest level, and then fell sharply below 8300.

At the same time, Little A chased up Bitcoin futures and MOVE1011 contracts at the position of Bitcoin 8800. On the futures side, it ended up with a floating loss of about US$500.

On the MOVE contract side, the price corresponding to 8800 yuan is 194. Although the price of Bitcoin dropped from 194 to the lowest 134 when the price of Bitcoin plunged, but because the benchmark price of MOVE1011 is 8556, when the price of BTC dives below 8450, The expected delivery price of the MOVE contract has reached 100, plus the time value, has gained support.

As the BTC price continued to fall, the absolute value of the fluctuation further expanded. By the end of the day, the MOVE contract purchased at the highest point of BTC8800 could be delivered at 247 yuan, making a profit of 54 US dollars.

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Strategy: Sell at the opening price and close the position when the time value is lower than 50

Assume that the handling fee for each transaction is 0.09%, one taker and one maker, and impact costs are not considered.

Cycle: From September 28th to October 13th

Backtesting situation

Assuming an investment of 10,000 US dollars, considering the efficiency of capital use, the cumulative net profit of 16 trading days is 183 US dollars, and the annualized rate of return is 41.2%. And does not take into account the use of margin.

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Perhaps because of the product synthesis or risk control design considerations behind it, unlike traditional option subscribers, the MOVE contract does not have the characteristics of high odds.

It is difficult to match the needs of buyers and sellers:

Since there is no high odds, it is impossible to attract users with strong "risk appetite". During the trading session when the time value is high early in the day, it is difficult to attract buying. In the stage of low time value, the yield curves of buyers and sellers are more similar to futures, and they have more advantages for buyers. Therefore, this period of time is less attractive for sellers.

From this point of view, it is difficult to match the needs of buyers and sellers of MOVE contracts. From a practical point of view, the turnover is indeed not large.

Judging from these two points, FTX's MOVE contract needs to further change the mechanism, so thatIntroduce users with higher risk appetite as the glue for matching buyers and sellers.secondary title

Therefore, when digital currency derivatives are in the ascendant and there is still a lot of room for trial and error, it is necessary to conduct research in a timely manner.

After all, everyone also needs to have a meal.

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