Ah, I remember that moron... He had no idea how to read a chart. Could have given me a few bucks and save a million. "Purchased for almost $1 million on LedgerX’s trading platform just days after Bitcoin peaked a year ago, the call options have a strike price of $50,000 and an expiry date of Dec. 28, 2018. He later tweeted that the trade -- selling some of his Bitcoin holdings while buying the call options -- was profitable." I guess he was smart enough to sell enough BTC to pay for the calls. That was a good decission because he sold at the top...
Why is this even news ? $1 million derivative is a tiny drop in the derivatives market. Tens or hundreds of millions of derivatives expire every week. It was partly a hedge that worked out pretty well. The headline makes it as though the trader lost $1m to attract readers. It's like reporting on a hedge fund's massive credit bull put spread expiring worthless as a losing position because the long put expired worthless.
It was reported because the buyer expected BTC to go over 50K, and bet big on it.. Second, it wasn't a hedge even though it was reported as such. He didn't short BTC, that would have been a hedge. I remember a year ago when this position was first reported. It didn't make sense even back then. I did the math, just straight out buying BTC for 1 million would have been a better deal. He would still have 25% or so left, and if BTC had gone to let's say 40K-45K, he would have made a killing but the calls still would be worthless. In short it was an incredibly stupid, senseless bet....
No, closing the BTC and using a smaller portion of the profits to buy calls is a partial hedge. He locked in profits. You are using hindsight to calculate the scenarios that would've been better. He obviously did not make the perfect trade which was closing all longs and shorting it. At the time he was cautious of a fall, yet still want massive upside if it went to the moon. He was somewhere in between. He is better off losing $1m in calls than several $m in the original position. Any move that saved him losing more was a good play. There are better plays using hindsight on what happened in a crazy market, he did not have that luxury. This is all assuming that he did have bigger profits in BTC which is being reported/he is claiming. No one knows for sure unless someone has inside info on the fund.
1. That is not a hedge by definition. But it was smart on his behalf to do so. Although he eventually lost more because had he left it in BTC he would still have 20-25% of it. 2. Nope, I criticized it back then, (you can search for it) and I also predicted the big meltdown BEFORE it happened. Do a search. Nothing 20/20 about it. 3. He should have bought puts then... Or sell calls, not buying them... The correct hedge would have been selling some of the BTC and buying long term puts. That IS a hedge...
1. It is a hedge. Look up the definition. "a way of protecting oneself against financial loss or other adverse circumstances." By closing longs and converting to calls at a lower cost he protected part and lowered his loss. 2. Maybe you are the better trader who can call every move, but this thread is not about you. He had a view and he traded according to it and he lowered his loss. I only remember your Pekelo play ponies something thread which didn't have great calls. 3. He still wanted to shoot for the moon. The calls would've worked out way better had the price blast through. You can say it's stupid that he's hoping for 50k+ but lots of people were saying 3k, 10k, 20k were stupid calls when it was at a few hundred. Anything can happen.
1. So buying a lock for your fence is a hedge. Got it. Let's repeat: Buying calls while you are holding longs IS NOT A HEDGE. 2. The ponies had very good calls (it is flattering you remember it). Again, this guy lost more this way than just holding BTC, so overall it was a bad trade. He would still have 200-250K left over for lottery tickets. 3. The price went vertical at 16K, there was no way it would still double from 20K. And he would have let the price fall back anyway... In short, a shitty trade. But hey, I am not a professional...
1. He sold BTC longs and replaced them with calls, how hard is that to understand ? You're too dense to understand. 2. Nop he saved money. He didn't make money from the fall that's the only part anyone can fault him but he reduced his losses. You obviously do not understand options as they are not linear vs the underlying. 3. Again, you are the prophet that knows where price will and won't go. He isn't.