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Crypto Option Trading: What are Move Contracts and How to Trade them?

In the previous post we discussed what are Options and how to trade them. If you are unaware of Option trading, I strongly recommend you read it before proceeding.

Options are a type of derivative product and their value depends on the underlying stock, in this case the cryptocurrency.

Move Contracts and How to trade them

Move Contracts are options that allow you to trade based on the movement of price of a certain cryptocurrency such as Bitcoin or Ethereum by risking only a small amount. The movement can be on either directions.

For simplicity, let us consider daily move contracts as an example. There are also weekly and quarterly move contracts that you can trade on exchanges. 

The starting price of this contract is approximately decided by the implied volatility of the underlying.

The ending price of these contracts is approximately decided by the difference between start and end prices during the day.

This can be calculated as

Contract Value at Expiry = absolute value of (Price at end of day- Price at start of day)

(Note – This is an oversimplified calculation. There are differences in start and end time of move contracts and how they are calculated based on the exchange you chose to trade them on.)

When you long a MOVE contract, you book a profit when the underlying moves heavily in either direction.

When you are short a MOVE contract, you book a profit when the underlying does not move too much. 

Long MOVE Contracts:

Let’s consider a daily MOVE contract. Suppose BTC starts trading at $5000 for the day and you are pretty sure that the market is going to be insane today. You just aren’t sure in which direction. In short, you predict the markets to be more volatile.

In this case, a good idea is to long MOVE Contracts. For the sake of this example, let us assume that the MOVE Contracts start trading at $300.

Scenario 1 : BTC moves up to $6000

Contract Value at Expiry = abs ($6000 – $5000)

Contract Value at Expiry = $1000

If you bought 1 contract at $300, you are in a decent $700 profit

Scenario 2: BTC moves down to $4000

Contract Value at Expiry = abs ($4000 – $5000)

Contract Value at Expiry = $1000

If you bought 1 contract at $300, you are in a decent $700 profit

Scenario 3: BTC moves only to $5200

Contract Value at Expiry = abs ($5200 – $5000)

Contract Value at Expiry = $200

If you bought 1 contract at $300, you are now in a $100 loss

Scenario 4: BTC moves only to $4800

Contract Value at Expiry = abs ($4800 – $5000)

Contract Value at Expiry = $200

If you bought 1 contract at $300, you are now in a $100 loss

Note how you made money when the market moved a good amount in either direction, but you lost money when the market stayed relatively stable. 

If the markets did not move even a bit, the max loss in a long MOVE position is capped at the amount you have in this position. In this case, since you bought 1 contract at $300, your max loss can never exceed $300.

Short MOVE Contracts:

Suppose BTC starts trading at $5000 for the day and you are pretty sure that the market is going to be more or less stable today. In short, you predict the markets to be less volatile. 

In this case, a good idea is to short MOVE Contracts. For the sake of this example, let us assume that the MOVE Contracts start trading at $300.

Scenario 1 : BTC moves up to $5100

Contract Value at Expiry = abs ($5100 – $5000)

Contract Value at Expiry = $100

If you sold 1 contract at $300, you are in a decent $200 profit

Scenario 2: BTC moves down to $4900

Contract Value at Expiry = abs ($4900 – $5000)

Contract Value at Expiry = $100

If you sold 1 contract at $300, you are in a decent $200 profit

Scenario 3: BTC moves up to $6000

Contract Value at Expiry = abs ($6000 – $5000)

Contract Value at Expiry = $1000

If you sold 1 contract at $300, you are now in a $700 loss

Scenario 4: BTC moves up to $4000

Contract Value at Expiry = abs ($4000 – $5000)

Contract Value at Expiry = $1000

If you sold 1 contract at $300, you are now in a $700 loss

Note how you made money when the market was relatively stable but lost a significant amount when the market moved in either direction. 

If the markets move a lot, the max loss in a short MOVE position is theoretically your entire collateral, aka liquidation.

You can watch this video with Jitender Tokas, co-founder of Delta Exchange explaining Move Contracts.

Jitender Tokas, co-founder of Delta Exchange explaining Move Contracts.

Exchanges to Trade Move Contracts

There are only a handful exchanges that offer Options and MOVE Contracts.

You can trade Options on Deribit and FTX.

You can trade MOVE contracts on FTX and Delta.

A simpler version and easy to invest options are also available on Okex.

The specifics of each contract changes according to the exchange you want to trade them on and there could be several subtle differences in the same offering between exchanges.

These help documents do a great job of explaining them:

Deribit Options

FTX Options & MOVE Contracts

Delta Exchange MOVE Contracts

Learn more about Bitcoin Futures and Margin Trading

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