Advanced Trading strategies EP:3
In the past week i’ve posted some epic gainz on twitter trading these contracts and some of you asked what it is, so in this article i will tell you what move contracts are, how to trade them and how to avoid devastating noob mistakes.
WHAT IS IT?:
So what are Move contracts? the idea is based on an options strategy called a “Long Straddle”. Basically, when you expect a big move in either direction up or down, you’d buy a PUT and a CALL options contract both expiring at the same time with the same strike price; this way if the price pumps or dumps, one of the contracts will gain asymmetrically in value. The Move contract is just a prepackaged version of this, so you don’t have to manually buy the options yourself. DeltaExchange offers daily move contracts on BTC, ETH, BNB and LINK.
HOW TO TRADE IT:
Okay so i’m gonna go light on this but you can feel free to dm me if you want the detailed reasons. The move contracts has a price per contract; this price + the strike, is the minimum price the underlying asset must trade for you to make profit, if you hold the extrinsic value is depleted at the Daily end of the contract’s life.
As you can see in this image above for a BTC Move contract, the Strike price is 35000 and the contracts price is 3351, this means if you buy the contract now and the price closes anywhere + or -35000(aka between 31649 to 38351) I'll call this the minimum profit range, you will lose it all because the extrinsic value will evaporate.
Extrinsic value of an options contract is the time value, options don’t get liquidated, they just lose their value with time. so a contract is born with 100% extrinsic value and ends with 0. this is called Theta Decay.
So you have to balance buying a contract later in its life to fade all that theta decay while making sure the minimum profit range isn’t too wide. now of course, if the price is stagnant throughout most of the day and the theta decay takes effect, the contract gets cheaper and cheaper and therefore the minimum profit range gets better and better. but because the contract life starts at 9:30EST aka stock market open, and of course crypto is now just a more volatile S&P500, sometimes you just gotta fomo the open.
WHAT NOT TO DO:
there are four main noob mistakes to avoid when trading Move.
1: BUY and HOLD, yeah don’t just buy this contract without expecting a big move based on some fundamental or technical analysis, you will lose everything.
2: Watch the IV! IV is the implied volatility, this is the number with which that contract price is based on so of course, just because the IV now is 85% doesn’t mean it’ll be 85% tomorrow, if it appreciated the contract value appreciates, if it depreciates the contract also depreciates, this is called an IV crush. IV formulae is based on a mathematical voodoo called the black-scholes formula.
3: Buying too late. so here’s the scenario, the price pumped away from the strike price, the contracts are now more valuable that when the market opened, you think the price will dump so you buy some move contracts which in theory appreciate in value when the price pumps or dumps, but the contract goes to zero, what happened? don’t forget, the Strike Price is the anchor and the profit is based on that, so if price moves back into the minimum profit range, you’ll lose money.
4: Leverage, yeah just don’t, please, the contracts are already 100x, don’t add anymore cards to the house.
DYOR and use my reflink it’s the least you can do, else you won’t make money.