In December 2017, in the midst of the speculative bubble on bitcoin investments, options contracts on bitcoin amounted to a total investment of 1 million dollars. These options expire on December 28th, 2018 and are about to close at a significant loss.
At that time bitcoin was traded at around $16,200, while now the price has fallen to around $3,500.
These call options were sold with an exercise price of $50,000, which means that BTC would have to increase by more than 1.400% in the next two and a half weeks to ensure that those contracts can retain their value. Alternatively, the loss will be roughly the total bitcoin investment.
The call options were purchased at $3,600 each but could be worth less than $10 to date, with an estimated loss of more than 99%.
The sale of these options was confirmed by LedgerX‘s CEO, Paul Chou, who also said that it was the largest trade of options on the company’s platform.
Business Insider revealed that they had discovered, through anonymous sources, that these contracts had been purchased by BlockTower Capital, and the confirmation came shortly after, on December 26th, 2017, by the co-founder of BlockTower Ari Paul, during an interview with CNBC.
Paul Chou stated that the position had been taken to manage the risk of his fund’s portfolio, adding that he did not recommend to most investors to buy them:
“I manage a cryptocurrency portfolio and I’m trying to give investors access to the upside, but I’m also very focused on risk management. So these calls are a way for me to capture upside exposure, while actually owning less bitcoin [and] reducing my downside risk“.
These call options are a way of investing in bitcoin without buying them and are used as part of real investment strategies.
Therefore, it would be necessary to know BlockTower Capital’s strategy to understand the real reasons why they were engaged with a bitcoin investment. At the moment, it is extremely likely that they will close with a strong loss.
The fact that they invested a value of 1 million dollars suggests that the exposure to the company’s bitcoin investments at the time could have been much higher.
