Imagine that you are a Bull Bitcoin (BTC), the confident prices will rally, but first anticipating a decline. Like many people, however, you are not able to combine their market entrances perfectly and think that you could miss the optimal moment to load an upward exhibition.
For merchants faced with this common situation, a structured product known as a look of look can offer a convincing solution.
A call for research is an exotic option which gives the holder the right to buy the underlying assets at its lowest observed price during the so-called lookback period.
For example, instead of trying to choose the exact bottom of the current BTC price report of record peaks, a trader can consider a three -month sweetback with a month -long lookback period.
This means that the exercise price is set at the lowest value of the first month, and the call can be exercised at this level at any time before the expiration of the three -month option after the look period. So, if the BTC price fell to $ 100,000 during the initial month before moving on to, let’s say, $ 140,000 in the following three months, the holder could demand that the transmitter Vende BTC at $ 100,000.
The unique structure of the option guarantees that the call buyer benefits from securing the perfect drop, maximizing his profit potential by eliminating the need for a precise market calendar. This contrasts a traditional purchase option from a centralized exchange, where traders must select a fixed exercise price, considerably increasing the risk of a sub-optimal input.
“BTC Spot remains close to its peaks, but implicit volatility has collapsed. This combination makes the look options particularly attractive from a risk perspective,” Coindesk Pulkit Goyal, responsible for exchanges on the orbit markets, at Coindesk Pulkit Goyal. “With implicit volatility at such low levels, the lookback function offers a perfect entry for a limited additional cost.”
The orbit markets, an over -the -counter office specializing in structured options and products, suggested a call for three months to its customers, which will define the strike on the lowest Bitcoin price over the next four weeks. The suggestion highlights a growing demand for sophisticated risk management tools and highlights the growing maturity of the cryptographic derivative market.
The advantage of a perfect entry has an additional cost. The orbit look call is at a price of 12.75% premium, which makes 3.5% more expensive than a regular 3 -month ATM call, which costs 9.25%. The optional transmitter takes the risk that BTC will decrease, forcing them to give you a more favorable exercise price. As a buyer, you also pay for this unique advantage.
What if BTC doesn’t fall?
It is perfectly possible that the BTC immediately gathers the market rate in the process of around $ 115,000 and remains higher in the next four weeks before going back to $ 140,000 at the end of the following three months.
In this case, the exercise price is set at $ 115,000 after the end of the one -month lookback period, giving the holder of the right to buy BTC at $ 115,000 on expiration.
In other words, even if the prices have not dropped initially, the call buyer has always obtained a good entry, taking advantage of the subsequent rise.
Risk profile
The buyer of the Lookback call option should lose the initial premium paid if BTC is blocking at levels lower than the exercise price set after a month.
The risk profile is therefore similar to that of a standard purchase option.
3:09 UTC: Corrects the costs associated with the look of look and the standard call mentioned in the ninth paragraph.
