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2018issue C0341-42

Bitcoin futures contract choice, percentage margin and calendar spreads

By late 2017 two bitcoin futures listings differed in multiplier, weekday hours and how a price move scaled contract value. Both stated overnight margin as a percentage of contract value so the cash requirement moved with settlement. A same-strike calendar spread was the listed way to seek faster near-term decay if the underlying stayed inside a range.

  • Two listed bitcoin futures set notional at one bitcoin or five bitcoins, so the same cash-market move produced different contract-value changes.
  • Both listings used percentage margin of contract value, illustrated at a 15000 settlement as 6600 on the single-bitcoin contract and 35250 on the five-bitcoin contract.
  • Weekday afternoon pauses and a Friday-night-to-Sunday-night close left a session gap while cash bitcoin could keep trading.
  • A calendar spread buys a longer-dated option and sells a shorter-dated option at the same strike when the intended edge is near-term decay inside a range.
Entries in this reading3 entries
Current trackCalendar spread trading19 readingsMargin management68 readingsFutures contract selection91 readings

Two listed bitcoin futures

By late 2017 two bitcoin futures listings were available. One single-bitcoin futures contract had a notional equal to one bitcoin and was referenced in that period as XBT. One five-bitcoin futures contract had a notional equal to five bitcoins and was referenced as BTC.

Contract size and weekday session

Futures contract selection means choosing among listed bitcoin futures by multiplier, weekday session length, and how those specs change profit and loss scale and hedge timing.

A 1000 rise in bitcoin, illustrated from 15000 to 16000, changed the single-bitcoin futures by 1000 of contract value and the five-bitcoin futures by 5000.

The single-bitcoin futures traded 23 hours and 45 minutes on weekdays and paused from 3:15 p.m. to 3:30 p.m. Central Time. The five-bitcoin futures traded 23 hours.

Percentage margin that moves with settlement

Margin management means setting and monitoring the cash required to hold a position, including percentage-of-notional rules that move with settlement.

Overnight margin on the single-bitcoin futures was 44 percent of the prior daily settlement, so a 15000 settlement implied a 6600 requirement. Margin on the five-bitcoin futures was 47 percent of contract value, computed as price times five times 47 percent. At 15000 the notional was 75000 and the margin was 35250.

Both bitcoin futures stated margin as a percentage of contract value rather than a fixed dollar amount so the cash requirement would scale if the underlying price changed.

Session gaps versus the cash market

A session gap is a scheduled afternoon pause or weekend close in the futures while the cash market can keep trading. Listed bitcoin futures paused in the afternoon and were closed from Friday night through Sunday night, while the cash bitcoin market continued around the clock.

The listed futures were described as a centralized, transparent venue in which transactions were guaranteed and margin funds were safeguarded under government-imposed rules that did not apply in the spot bitcoin market.

Calendar spreads for time decay inside a range

Calendar spread trading buys a longer-dated option and sells a shorter-dated option at the same strike so faster near-term time decay can work if the underlying remains inside a price range.

Editorial: use that construction when the intended edge is near-term time decay inside a range rather than outright directional exposure.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
18 of 18 in the Calendar spread trading track
1989Track finished · Next track: Cash-secured putCash-secured puts and spreads versus buy-write overlays30 readings
All readings on this track · 18 readings
  1. 1982Constructing commodity spreads, calendar legs, and option straps
  2. 1987Seasonal calendar spreads as financed capital slots
  3. 1989Seasonal dates, confirmation, and reconstructed spread bars
  4. 1991Calendar-spread divergence as a demand clock for commodity reversals
  5. 1992Expiration-forced convergence for basis, calendar, and option-income trades
  6. 1993Write the soybean intercrop calendar as one procedure
  7. 1996A commodity-basket redesign read as a proxy and a calendar-spread
  8. 2003Calendar spread construction by volatility skew
  9. 2003Livestock calendar spreads during a commodity-index roll
  10. 2004Same-strike calendar construction, decay income, and account gates
  11. 2004Range-bound calendar spreads and precommitted exits
  12. 2007Construct futures size from the good-faith deposit and the spread
  13. 2007Critiquing calendar spreads when reversals overrun
  14. 2010Name the spread, then construct the legs
  15. 2012Monthly calendar income under a volatility-regime process
  16. 2016A VIX calendar-spread case after the 2015 volatility spike
  17. 2017Yield curve kinks as spread laboratories
  18. 2018Bitcoin futures contract choice, percentage margin and calendar spreads
By fieldOptions and volatility435 readingsBy year2018172 readings
All 19 readings tagged Calendar spread trading
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2004Same-strike calendar construction, decay income, and account gates2007Construct futures size from the good-faith deposit and the spread2015A wide Treasury calendar and the 2015 delivery gap1982Constructing commodity spreads, calendar legs, and option straps1987Seasonal calendar spreads as financed capital slots