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Comment by dia80 | Hacker News Reader

There can be no options since volatility is impossibly high.. lets take an example. You buy an $850 put with the spot price at $850 and it expiries in 6 months. 90 day realized volatility has been 130% annualized so the black-scholes formula says i have to charge you $300 usd for that option. You make money if BTC is $550 or below in 6 months. Your upside is $550 if it goes to 0 and down side is $300 usd. Still want to trade?

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I suspect you could find people willing to sell that put for less than $300. If there's no action at $300, somebody will step in at $200, or $100, or $10. Remember that Bitcoin can only go up, so there's no risk. It's like free money, you just have to be willing to accept a little less free money than the rest of market to get yours.

https://en.wikipedia.org/wiki/Greater_fool_theory

My apologies if you meant your statement as sarcasm.

Ah... the "intrinsic value" theory. Hasn't this one died already?

My sketch of the math back when BTC was $1,000 was that BS had a 1 year put at a $100 strike valued at about a nickel. At that price, assuming availability in quantity and acceptable levels of risk caused by factors other than BTC being worth more than $100 in a year, I'd be buying.

black-scholes also assumes the ability to dynamically, instantaneously hedge with very low transaction costs I recall. The market-maker has to charge even more to recover costs in this case since they cannot dynamically hedge and bid-offer tight nor is the market deep.

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