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spankmeister posted:might as well be talking about slurping apes or whatever, no clue what this all means You're a HODLer. You have a BTC at 30k. Perhaps you're a prudent HODLer and decide in case this goes tits up, you should buy some insurance - you buy a put for 20k. Whoever sells you that put is agreeing to buy your coin at 20k. You pay some premium to the seller for this, because if it says flash crashes to 10k, they still have to buy it for 20k and they want to get paid for the risk. You can rest assured that worst case scenario, you're only out 10k, not 30. In most cases the seller is a market maker, they don't care what the price does - they're going to hedge against this by shorting (selling) BTC. The moment they sell you the put they'll also sell some BTC against the possibility it does actually get down there, but since it's currently at 30k it won't be a lot to offset the probability. But if the price drops to 25k, well, that dealer to make themselves neutral has to sell more BTC. And so on. This is an exponential process, as the price gets closer to the sold put price more and more BTC needs to be sold to maintain that neutrality. There's a lot being left out here, but that's the gist. The OTC bit is over the counter - or deals that were made over the phone or whatever and probably isn't available on an order book to be seen but nonetheless will have an effect as price gets near the strike. The problem here is the liquidity just doesn't exist for all of this open interest (existing insurance contracts) and can cause a waterfall effect as all of these dealers holding the other end try to sell to maintain a neutral book and kick off a cascade.
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Jun 14, 2022 07:29
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| # ¿ May 16, 2024 06:30 |
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