DOWNs Worked Example

The graph below shows the hypothetical² price for a BitMEX Bitcoin DOWN contract XBT7D_D90 (right axis) as the .BXBT30M index changes (left axis). We have provided prices for each day (12:00 UTC) throughout the seven-day life of the product.

Listing date and time is Friday, 15 December 2017 at 12:00 UTC

``````.BXBT30M = USD 17,816.70
``````

Expiry date and time is Friday, 22 December 2017 at 12:00 UTC

``````.BXBT30M = USD 13,849.31
``````

In this example we consider the contract XBT7D_D90. The strike is calculated to be USD 16,000. This is the nearest USD 250 increment to 90% of USD 17,816.70. The KO barrier is USD 8,000.

### P&L and Margin Scenario 1: Buy 100 contracts and hold to maturity

Assume you begin with 10 XBT in your account.

#### Fri 15 Dec 12:00 UTC (listing date and time): Buy 100 contracts at hypothetical² last price = 0.0056 XBT

• `Unrealised P&L = number of contracts * (last price - entry price) = 100 * (0.0056 - 0.0056) = 0 XBT`
• `Realised P&L = 0 XBT`
• `Position margin = 100 * 0.0056 = 0.56 XBT`
• `Wallet balance = deposits - withdrawals + realised P&L = 10 XBT`
• `Available balance = wallet balance + unrealised P&L - order margin - position margin = 10 + 0 - 0 - (100 * 0.0056) = 9.44 XBT`
• `Margin balance = wallet balance + unrealised P&L = 10 + 0 = 10 XBT`

#### Sat 16 Dec 12:00 UTC: Hypothetical² last price = 0.0044 XBT

• `Unrealised P&L = 100 * (0.0044 - 0.0056) = -0.12 XBT`
• `Realised P&L = 0 XBT`
• `Position margin = 100 * 0.0044 = 0.44 XBT`
• `Wallet balance = 10 XBT`
• `Available balance = 10 - 0.12 - 0 - 0.44 = 9.44 XBT`
• `Margin balance = 10 - 0.12 = 9.88 XBT`

Calculations for all other dates until expiry (17, 18, 19, 20, 21 Dec) follow the same methodology, just using different hypothetical² last prices.

#### Fri 22 Dec 12:00 UTC (expiry): Settlement price = 0.0155 XBT

• `Unrealised P&L = 0 XBT`
• `Realised P&L = number of contracts * (settlement price - entry price) = 100 * (0.0155 - 0.0056) = 0.99 XBT`
• `Position margin = 0 XBT`
• `Wallet balance = 10 - 0 + 0.99 = 10.99 XBT`
• `Available balance = 10.99 XBT`
• `Margin balance = 10.99 XBT`

### P&L and Margin Scenario 2: Buy 100 contracts and sell before expiry

Assume you begin with 10 XBT in your account.

#### Sat 16 Dec 12:00 UTC: Buy 100 contracts at hypothetical² last price = 0.0044 XBT

• `Unrealised P&L = number of contracts * (last price - entry price) = 100 * (0.0044 - 0.0044) = 0 XBT`
• `Realised P&L = 0 XBT`
• `Position margin = 100 * 0.0044 = 0.44 XBT`
• `Wallet balance = deposits - withdrawals + realised P&L = 10 XBT`
• `Available balance = wallet balance + unrealised P&L - order margin - position margin = 10 + 0 - 0 - (100 * 0.0044) = 9.56 XBT`
• `Margin balance = wallet balance + unrealised P&L = 10 + 0 = 10 XBT`

#### Sun 17 Dec 12:00 UTC: Hypothetical² last price = 0.0019 XBT

• `Unrealised P&L = 100 * (0.0019 - 0.0044) = -0.25 XBT`
• `Realised P&L = 0 XBT`
• `Position margin = 100 * 0.0019 = 0.19 XBT`
• `Wallet balance = 10 XBT`
• `Available balance = 10 - 0.25 - 0 - 0.19 = 9.56 XBT`
• `Margin balance = 10 - 0.25 = 9.75 XBT`

#### Mon 18 Dec 12:00 UTC : Sell 100 contracts at hypothetical² last price = 0.0018 XBT

• `Unrealised P&L = 0 XBT`
• `Realised P&L = number of contracts * (settlement price - entry price) = 100 * (0.0018 - 0.0044) = -0.26 XBT`
• `Position margin = 0 XBT`
• `Wallet balance = 10 - 0 - 0.26 = 9.74 XBT`
• `Available balance = 9.74 XBT`
• `Margin balance = 9.74 XBT`

### Protecting a long Bitcoin position with a BitMEX Bitcoin DOWN contract held til expiry

As the contract size of a Bitcoin DOWN is 0.1XBT, we overlay one long Bitcoin with 10 DOWNs.

For the Bitcoin DOWN contract example we consider the instrument XBT7D_D90, we use a strike price of USD 9,000 (KO barrier = USD 4,500). We have assumed that .BXBT30M was USD 10,000 on the listing day of the contract.

#### Listing date and time

Assume .BXBT30M = USD 10,000, Strike = USD 9,000, KO Barrier = USD 4,500, Hypothetical² Last Price of DOWN= 0.0057 XBT

• `Buy 1 Bitcoin at USD 10,000`
• `Buy 10 DOWNs at hypothetical last price for 10 * 0.0057 XBT = 0.057 XBT (Current USD Equivalent¹ = USD 570)`

Assume .BXBT does not touch or fall below KO Barrier = USD 4,500 during the life of the contract.

#### Expiry date

Assume .BXBT30M = USD 6,000, Settlement Price of DOWN = 0.05 XBT

• `MTM on 1 Bitcoin = USD 6,000 - USD 10,000 = - USD 4,000`
• `Realised P&L on 10 DOWNs = 10 * (0.05 - 0.0057) = 0.443 XBT (Current USD Equivalent¹ = USD 2658)`

Assume .BXBT touches or falls below KO Barrier = USD 4,500 during the life of the contract.

#### Early Expiry

.BXBT = KO Barrier = USD 4,500, Settlement Price of DOWN = 0.1 XBT

• `MTM on 1 Bitcoin = USD 4,500 - USD 10,000 = - USD 5,500`
• `Realised P&L on 10 DOWNs = 10 * (0.1 - 0.0057) = 0.943 XBT (Current USD Equivalent¹ = USD 4243.50)`

¹ The USD Equivalent is only for illustrative purposes. All transaction on BitMEX Bitcoin DOWN are in XBT.

² The hypothetical price is a theoretical value calculated using a closed form solution for barriers (extending on Black Scholes vanilla pricing), with constant parameters (interest rate = 0, repo = 0, implied volatility = 190). It is only being used for illustrative purposes and is not a true reflection of the actual market price at which you can buy/sell.