The options we offer are European, vanilla options. When you enter long option position (buy), you pay the premium and receive the right to exercise at the option strike price, at the time of expiration, whereas when you enter short position (sell), you receive the premium upfront while being obliged to satisfy the amount due to the long side at expiration.
Options are standardized analogically to futures. Their underlying is BTCUSD exchange rate and each option has $1 notional value, which means that they are fully compatible for hedging and arbitrage with futures on Quedex and other exchanges, such as OKCoin and BitMEX.
Currently, there are at least 3 contract maturities, expiring on Fridays 8:00 UTC, just as in the case of futures.
Usually, there is also a bi-weekly option contract, whenever it is different than the monthly contract. Daily options coming soon.
Quedex supports two notation styles. The exchange matching engine operates in bitcoin notation, natural to bticoin-centric exchange. It treats Bitcoin as the home currency, and quotes the options:
An option contract on BTCUSD with notional amount of 1 USD might have a price of 0.0005 BTC, which means its value is
0.0005 * 1 = 0.0005 BTC.
For convenience, the strikes of options are displayed in the inverse notation in the web app. This functions as follows:
inverse strike = 1 / bitcoin strike).
CALLin inverse notation is equal to buying a
PUTin bitcoin notation, and conversely, buying a
PUTin inverse notation amounts to buying a
CALLin bitcoin notation. Selling a
CALLis equal to selling a
PUTin bitcoin notation, and selling a
PUTto a selling a
In order to properly value options in inverse notation, you have to:
= 1 / BTCUSD).
CALLoption with strike 350 is in fact a
PUToption with strike
1 / 350 = 0.002857143in bitcoin notation.
CALLshould be valued as
PUTwith strike 0.002857143 and underlying USDBTC price
1 /375 = 0.002666667.
Long option position (the buyer) is not margined (initial and maintenance margin equals 0), but has to pay the option premium when entering the position.
Short option position (the seller) is margined, so as to be able to satisfy the amount due to the long side at expiration. See how margin is exactly calculated in margin calculations below.
Profit and Loss for options is not inculded in the margin calculations and is not added to the balance - currently, the options are equity style (see e.g. ICE's equity vs. futures style). This means that the only way to realize profits from an option trade is to exercise it (hold until expiration) or close the position. However, when a trade happens, the option premium is added to or subtracted from the daily unsettled Profit and Loss. This will change in the futures.
Options are exercised automatically at the expiration (immediately after the closing auction) when it's profitable for the long side, i.e. when the option is in the money and the profit covers exercise fee. The exercise fee is subtracted from both sides.
Currently, all options are financially settled, which means that no underlying asset (e.g. US Dollars) is transferred. How settlement price of the underlying assets is calculated is explained in the settlement article.
Margin of a long option open position is 0. If submitting a buy option order, you have to have enough funds to pay the option premium (and fee):
option premium = price * notional amount
price- limit price for buy order, current price for open position (see calculation below)
notional amount- notional amount of the option
Margin of a short option open position:
margin = margin percent * underlying BTC price * notional amount * quantity + option premium
margin- initial or maintenance margin
margin percent- initial or maintenance margin percent, respectively (value available on contract's details page)
underlying BTC price- current underlying price of the futures contract with the same maturity in bitcoin notation, i.e.
1 / USD price(futures prices are used as best estimators of the price at expiration)
quantity- position quantity
option premium- as defined above, for the current option price
Margin for a sell option order is calculated as defined above with
price equal to
max(limit price, best buy price),
quantity equal to order quantity and
option premium equal to 0.