How does contango affect the pricing of Bitcoin options?
Jamer AndersonJan 13, 2022 · 3 years ago1 answers
Can you explain how contango impacts the pricing of Bitcoin options? I've heard that contango can have a significant effect on the cost of options, but I'm not sure exactly how it works. Could you provide some insights into this?
1 answers
- Jan 13, 2022 · 3 years agoContango has a direct impact on the pricing of Bitcoin options. When there is contango, it means that the future price of Bitcoin is expected to be higher than the current price. This expectation leads to an increase in the demand for call options, which allows the holder to buy Bitcoin at a predetermined price in the future. The increased demand for call options drives up their prices. Additionally, contango also affects the pricing of options through the cost of carry. Since contango implies a higher future price, it means that holding Bitcoin until the option's expiration date will be more expensive. This cost of carry is factored into the pricing of options, making them more costly. Therefore, contango can significantly impact the pricing of Bitcoin options, making them more expensive due to the expectations of a higher future price and the increased cost of carry.
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