A trader who turned $ 638,000 into $ 4.4 million in 5 weeks

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A trader who turned $ 638,000 into $ 4.4 million in 5 weeks

One trader managed to raise $ 4.4 million by creating a $ 638,000 buy position on the Deribit exchange trading platform.

According to Kevin Desk, the story begins where a trader (or a small group of traders) bought 16,000 option contracts on October 30 with a deal price of $ 36,000 and matured in January. According to Deribit data, the price of each contract was 0.003 bitcoins. In other words, the premium paid by this trader for 16,000 contracts was 48 bitcoins (0.003 bitcoins per contract).

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If we want to convert these figures into dollars, we have to say that the guarantee or premium (contract price) was $ 39.9 at the time of purchase and the buyer paid $ 638,400 to take possession of it.

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As the bitcoin price jumped from $ 13,400 to $ 19,000, the guarantee required to repurchase these contracts increased from 0.003 bitcoin to 0.0145 bitcoin. So far, the paper contractor has made a profit of $ 4 million.

If this situation is liquidated right now, and assuming that the sale of 16,000 contracts in a loss situation does not reduce the price, the net profit will be 7 times the initial amount.

The option to purchase allows the holder to purchase the asset at an agreed price on the due date, if desired. Deribit options contracts are settled in cash; This means that when the contract expires, only the profits from the contract will be credited to the individual account.

There is currently no justification for buying at $ 36,000. As the current price is lower than the agreed price, the option has no value.

On paper, when we buy at an agreed price of $ 36,000 with a maturity date of January 29, it means that we expect the price of Bitcoin to rise to $ 36,000 by that date; In this case, the contract is worth buying.

Now, if the price of Bitcoin rises in the market, the options that were in a losing position will gradually enter the profit range, and this will increase the price of the contract premium.

If the market continues to rise at the same pace, the premium of options options contracts will increase. However, the possible stabilization of the price and its stability will reduce the probability that the price of Bitcoin will reach $ 36,000.

In some cases, buying and trading option contracts carries more risks than buying bitcoins directly.

For example, the same trader may suffer huge losses; Because if the buyout expires on January 29 and the price of Bitcoin is below $ 36,000, he will likely lose $ 638,000.

It should not be forgotten that the maximum loss of an option trader is equal to his premium.

If the trader wants to cash in on some of his current position, he must first find someone who wants to buy his contract.

At present, given that the price of Bitcoin is likely to reach 36,000 by the end of January, it can be said that there is a buyer for this option.

Shaun Fernando, head of risk and derivatives products, said in a statement:

In this case, the acquisition of strong bullish market sentiment (making huge profits) is done by buying (Long) options contracts. But trading loss-making contracts is a low-risk, lucrative solution with limited losses for the trader. The price increase of these contracts is a result of price infrastructure movements and increased fluctuations, but it does not mean that the price must necessarily exceed the agreed price in order for the trader to make a profit.

There are currently more than 20,000 open options contracts at a bargain price of $ 36,000, the highest number of open contracts at a given price.

If open contracts increase at a price that is unlikely to be reached, it is an upward sign.

It should not be forgotten that sometimes several large traders distort this data and therefore it should not be considered a reliable criterion for predicting market conditions.

In the past, many believed that the current state of the digital currency market was different from previous years and that it was no longer possible to walk the hundred-year-old path overnight.

But as explained in this article, with the right price forecast, huge profits can be made in a few weeks.

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Remember that the option market is extremely risky, and entering it without sufficient knowledge can have irreparable consequences.

A trader who turned $ 638,000 into $ 4.4 million in 5 weeks

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