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Bitcoin derivatives that cost $1m will soon be worthless

The biggest-ever bet on Bitcoin options is about to expire worthless.

Purchased for almost $1 million on LedgerX’s trading platform just days after Bitcoin peaked a year ago, the call options have a strike price of $50,000 and an expiry date of December 28, 2018. For the contracts to retain any value at expiry, Bitcoin would need to rally more than 1 200%.

The options’ almost certain wipeout is a less-than-ideal outcome for the buyer, but it may not be quite as bad as it seems.

Ari Paul, a cryptocurrency fund manager at BlockTower Capital, has indicated that he bought the options while simultaneously selling some of his fund’s Bitcoin holdings. In a December 2017 interview with CNBC, Paul said the trade allowed him to lock-in some profit, reduce exposure to market declines and potentially earn a big payout if Bitcoin soared above $50 000.

When the options were purchased, causing a stir in crypto circles, Bitcoin was trading at about $16 200. The virtual currency has since tumbled to $3 800, mired in one of the worst bear markets since its inception a decade ago.

“These calls let me capture upside while reducing my downside risk,” Paul told CNBC. He later tweeted that the trade — selling some of his Bitcoin holdings while buying the call options — was profitable.

Paul, a former portfolio manager at the University of Chicago endowment, didn’t disclose the performance of his entire fund. BlockTower declined to comment.

LedgerX, the first US-regulated Bitcoin options exchange, declined to identify the buyer or seller of the calls but confirmed that the position, which has a notional value of $13.75 million, remains the biggest Bitcoin options trade to cross its platform.

© 2018 Bloomberg L.P

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