That’s not the kind of trade that any retail investor would want to make. BTC options worth a million dollars purchase by Ari Paul set to expire at total loss on December 28.
The world of financial markets can be compared to a jungle. In any jungle only the fittest can survive. Especially when it comes to unregulated markets like crypto, the survival of the fittest is 100% true. You can’t survive in the market if you are putting all your money into it – a single stroke of bear phase can wipe out not only your savings but also your mental peace and financial stability. That’s precisely the reason why smart investors follow the rule of diversification – to shield their financial stability from the flukes of market. Now another case has emerged to prove the same point: the BTC options worth a million dollars purchased by a Hedge Fund manager are expiring on 28th of December, and they’re going to be settled at a total loss.
The options in question were purchased by Ari Paul, who is the former portfolio manager for University of Chicago’s endowment and currently the Chief Investment Officer (CIO) of Blocktower Capital. He had made the largest ever speculative bet on Bitcoin back in November 2017 when price of Bitcoin was soaring. He purchased BTC call options worth a million dollars at the price of $3,600 per contract with a strike price of $50,000 for an year later. Now, currently Bitcoin is trading below $3,500, which means that the price of BTC must jump 1400% within two weeks from now if Paul has to make any profits on this trade. Obviously, this is not gonna happen.
The $40,000 contracts for Bitcoin Price are currently trading for $9.6 on Deribit, which means that Paul is already sitting on a pile of 99.73% loss. His doomed position still remains the largest position ever taken at LedgerX platform.
A position for risk management
Now, while a loss of one million dollars is certainly not less, it doesn’t seem that the finances of Blocktower Capital (the fund managed by Paul) might’ve been hurt by this doomed traded. Paul has clarified himself in December 2017 after taking the position that he is taking it for the purpose of risk management and hedging. During an interview to CNBC he had said:
“I think it’s not quite as interesting as people make it out to be. I manage a cryptocurrency portfolio and I’m trying to give investors access to the upside, but I’m also very focused on risk management. So these calls are a way for me to capture upside exposure, while actually owning less bitcoin [and] reducing my downside risk.”
He had also added during the same interview that he won’t advise other investors to take these positions. Paul is a professional and experienced fund manager, so he might certainly arranged something to compensate for this bad trade (which is the reason why diversification is important).