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Upside Profit Contracts Guide

Overview

A BitMEX UP (Upside Profit) Contract allows buyers of the contract to participate in potential upside of the underlying instrument. The buyer pays a premium on trade date for which he is entitled to receive the difference between the underlying instrument settlement price and strike price on maturity date if positive, else no payment occurs. All transactions are Bitcoin settled.

Investors can only be net long UPs, they cannot short sell. Only the BitMEX anchor market maker can be net short.

Why buy a BitMEX Upside Profit Contract?

  • This contract provides an efficient way to participate in market rallies. See example for a comparison of buying BitMEX Bitcoin UP to Bitcoin, the underlying instrument in this case.
  • The possible loss is limited to initial investment, which is usually a fraction of the coin price.
  • Unlike a perpetual swap or future there is no liquidation price or margin call. This means buyers maintain a long market position during market declines but still participate in rallies that occur before expiry date.

How does the payout at maturity of a BitMEX Bitcoin UP contract compare to buying Bitcoin?

The graph below compares the USD equivalent¹ settlement price of Bitcoin UP contracts to the mark to market (MTM) on a long Bitcoin position initiated at USD 10,000. As the contract size of a Bitcoin UP is 0.1 XBT, we compare 10 UP contracts to 1 XBT. For the Bitcoin UP contract example we consider the instrument XBT7D_U110 (refer to “UP Contract Example” below for instrument terminology details), hence have used a strike price of USD 11,000. We have assumed that .BXBT30M was USD 10,000 on the listing day of the contract. Please refer to the relevant contract specifications for the instrument being traded. Although the actual settlement price of the Bitcoin UP contract is in XBT, it is useful to consider the USD equivalent for comparison.

Chart

In order to have the entire upside above the strike, with no downside, the investor pays the initial contract price. On the listing date, this is usually a small fraction of a Bitcoin.

¹ The USD equivalent settlement price is only for illustrative purposes. The Bitcoin UP contract always settles in XBT using the .BXBT30M price on the expiry date.

How is the settlement price at maturity calculated?

Assume the following:

Strike = USD 11,000

Expiry

.BXBT30M at maturity = USD 20,000

From the contract specifications:

Settlement price = Contract Size * (.BXBT30M - Strike) / .BXBT30M

Therefore, in this case we have:

Settlement price = 0.1 * (20,000 - 11,000) / 20,000 = 0.045 XBT

How does the settlement price of a BitMEX Bitcoin UP contract vary with .BXBT30M on expiry date?

Assuming a strike price of USD 11,000, the graphs below show how the settlement price of one Bitcoin UP contract varies with .BXBT30M on the expiry date.

Settlement Price

¹ The USD equivalent settlement price is only for illustrative purposes. The Bitcoin UP contract always settles in XBT using the .BXBT30M price on the expiry date.

What is the breakeven price and how is it calculated?

The breakeven price represents the .BXBT30M price (USD) required on maturity date for the settlement price of the BitMEX Bitcoin UP contract (XBT) to equal the average entry price (XBT).

Breakeven Price = Strike / (1 - (Average Entry Price / Contract Size) )

For example, if an investor buys BitMEX Bitcoin UP contracts with a strike of USD 11,000 at average entry price of 0.01 XBT then

Breakeven Price = 11,000 / (1 - (0.01 / 0.1) ) = USD 12,222.22

Can you provide an example of the hypothetical price of a BitMEX Bitcoin UP contract through the life of the trade?

In the examples above we have concentrated on the settlement at maturity, however investors can buy and subsequently sell the UP contract before expiry. See example of how the hypothetical price of an BitMEX Bitcoin UP may behave with varying .BXBT30M levels through the life of a contract. We also provide the hypothetical P&L under different trading scenarios.

What are the minimum and maximum values of a BitMEX Bitcoin UP contract?

Minimum value is 0 XBT. Maximum value is 0.1 XBT.

How does the BitMEX Bitcoin UP contract compare to the perpetual swap?

A long Bitcoin UP contract has no liquidation price, whereas a leveraged perpetual swap does.

A long Bitcoin UP position only benefits from a rally above strike if it occurs before the fixed maturity date. The perpetual swap has no maturity date.

Can I buy and sell a BitMEX Bitcoin UP contract like a perpetual swap or future?

Investors can only be net long for an UP contract. They cannot short-sell as they can for a perpetual swap or future. Only the anchor market maker can short-sell.

Who is the net seller of a BitMEX Bitcoin UP contract?

A BitMEX-designated anchor market maker.

What are the fees for trading a BitMEX Bitcoin UP contract?

There are zero fees.

Mechanics of BitMEX UPs Markets

When trading UP contracts, a trader needs to be aware of several mechanics of the UPs market. The key components a trader needs to be aware of are:

  1. Contract Size: This is the notional of each contract. You can see this information under the Contract Specifications of each instrument.
  2. Position Marking: UP contracts are marked according to the Last Price.
  3. Margin: UP contracts are fully margined products.
  4. Settlement: BitMEX employs an averaging over a period of time prior to settlement to avoid price manipulation in the calculation. This time frame may vary from instrument to instrument and traders should read the individual contract specifications to see when is expiry and the individual settlement calculation.

UP Contract Example

XBT7D_U105 is the 7-day UP contract for Bitcoin. The strike is the nearest USD 250 increment to 105% of .BXBT30M on listing day. Traders can speculate on the price of Bitcoin at the Settlement Date, which occurs every Friday at 12:00:00 PM UTC. The margin required is the entry price, making it a fully margined product. The Settlement Procedure uses a 30-minute Time Weighted Average Price (TWAP) prior to expiry.

The specific Contract Calculations are as follows:

Contract Calculations
XBT Contract Value 0.1 XBT
USD Contract Value 0.1 XBT * .BXBT
PNL Calculation # Contracts * (Exit Price - Entry Price)
Settlement Price 0.1 * Max(0, (.BXBT30M - Strike)/.BXBT30M)