Trading MOVE Contracts – CryptOrangutang
When traders talk about FTX products, usually the indexes get the most spotlight. There is a good reason for it, as they allow you to be exposed to certain categories without the need for tracking 10 charts at the same time. However, there is another contract type that is greatly overlooked, possibly because its mechanism is not clear to everyone at first sight. Enter MOVE.
By the way, if you want to learn more about FTX and its indexes, take a look at this article written by Monk — it’s a cool and easy overview of all their products.
How does it work?
MOVE contracts are very often promoted as “betting on how volatile Bitcoin is going be”. While there is some truth to it, as it indeed does allows you to speculate on how volatile BTC is going to be on a certain day/week/quarter, it’s not calculated in a way most think.
Volatility on MOVE contracts is calculated as a total amount of $ that BTC moved from the origin of the contract until its expiry. This means that it doesn’t matter if BTC made 500$ swings every other hour — the only thing that matters is how “far” the price went from the moment of the contract’s beginning. Let me show this on an example:
If a contract started trading when BTC was at 9240, a move in ANY direction (up or down) would increase the absolute value of the MOVE contract.
So if the price went up to 9540$, the MOVE contract’s expiry value would be the same as if it went to 8940$ — 300$. It doesn’t matter which direction the price goes. The only thing that matters is the amount of $ between the starting position and the current price.
To make sure it’s clear enough — high volatility in this shown period i.e. a 350$ jump and a 250$ drop would still result in a 100$ MOVE contract expiry value. Those swings do not add up and it only matters where the price closes in comparison to the contract’s starting price of BTC. If a strong breakdown gets followed by a spring and it holds, the expiry of the contract would make it seem like a boring day.
How to trade it?
The “betting on volatility” starts at the moment of the contract’s listing. The currently traded price of the contract is not the exact difference between the Strike price (BTC price at the start) and its current one. It’s speculatory. The closer the expiry date is the smaller the gap between the MOVE contract’s value and predicted expiration price. This is why the maximum opportunity usually lies at the time of the contract’s listing.
If the BTC price fluctuations were high at the moment of the contract’s start, the initial price is also going to be high. Same for the opposite — low fluctuations are going to result in a low initial price of the contract. This is where traders usually place their bets.
When to long?
Longing MOVE contracts is basically betting on the expansion out of the range, no matter the direction.
If you expect a breakout to happen due to a common trading pattern or some planned news, you should be longing the MOVE contract when it is at its lowest. As the price of it is an absolute value of the movement (no matter if BTC explodes up or down), you want to catch it when it’s still within the range and hold it as long as it is trending.
When you plan on trading the MOVE contract after the expansion always be aware of the Strike price. Longing the contract makes sense only if the price is going to continue to trend — simply playing a volatile move is going to put you in a loss if it retraced part of the earlier expansion.
A simple example:
MOVE contract starts trading at 100$ when BTC is at 9500$. You long 1 contract expecting BTC to break out of the range because it’s been in it for too long. When BTC does that and reaches 9900$ you are currently in 300$ profit. You would be in the same exact profit in BTC broke down and fell to 9100$.
Now, if you didn’t long that contract before and are seeing signs of another big move incoming, you have to first look at whether it’s going to be a continuation of the previous expansion. Longing MOVE contract on a move from 9100$ to 8900$ is going to book you profit, but if the price went to 9300$ instead, you would be at a loss because the strike price was at 9500$. In that case, you should’ve been shorting the contract instead of longing.
When to short?
Shorting MOVE contracts is basically betting against the volatility, hoping for a decrease in value over time due to small fluctuations.
If a MOVE contract starts at a certain value and BTC’s price will continue to consolidate within a small range, that contract’s value is going to decrease with time. As I’ve mentioned earlier, the closer the expiry date is, the smaller the gap between the Strike price and the expected expiry price.
Let’s give an example:
MOVE daily contract launches at 300$ with BTC being at 9800$. If BTC proceeds to consolidate for the whole day within an 80$ range (9760$ — 9840$), the value of the MOVE contract is going to decrease with time until it finally expires at, let’s say, 40$ because BTC closed the day at 9840$. If you shorted 1 MOVE contract at 300$, you end up with 260$ profit.
The higher the initial value of the MOVE contract, the bigger the potential gains can be if we are betting on BTC calming down in that certain period. Not everything keeps making daily 50% swings and this is a perfect way of profiting from a trend that we think is losing its steam.
Why is it worth it?
MOVE contracts are an interesting option because they allow you to profit from BTC’s movement even if you are not sure which direction it will go.
Unless you are a dead shitcoin, long consolidation periods end with the expansion and a trending market afterwards. Often the signals are not clear enough to decide whether to go long or short, so the MOVE contracts let you profit from the move regardless of the direction.
Each one to their own, but for me, this is one of the easiest trades one can make.
What else?
There are 3 types of MOVE contracts — daily, weekly and quarterly. For each one of these, there is always a new MOVE contract available that follows up the period that is currently traded (e.g. there will a be 0216 (16th of February) MOVE contract available even tho currently it’s still the 15th.). This gives an opportunity to bet early on the next day/period in which we expect some sort of movement from the traded asset.
I will allow myself to quote a few additional characteristics of the MOVE contracts taken from the article below, as it sums them up in a very cohesive way:
The starting price and delivery price are determined by the weighted average price of the previous hour. This is to avoid the impact of the drastic fluctuation of the underlying asset price. Daily for example is calculated from 00:00:00–00:59:59 UTC to 23:00:00–23:59:59 UTC.
The profit of MOVE buyers is similar to that of futures: margin is required to buy and sell MOVE contracts, and the margin requirement is roughly the same as that of a BTC futures contract.
That is to say, although the MOVE contract is only $100, buyers need to pay a deposit equivalent to 1 Bitcoin. Suppose BTC is worth $8500, even if it can apply 10 times of leverage, it still needs a deposit of $850 to buy a MOVE contract.
If you want to understand the MOVE contracts even better, read this official article from FTX:
Last but not least — if you are still new to FTX, you can sign up using our link which gives 10% discount on fees instead of the regular 5%:
Published at Fri, 14 Feb 2020 19:35:06 +0000
