Note: As of March 1, 2014 MPOE has been shuttered for the foreseeable future because they found all existing sources of price data unreliable. So this text is currently only of historical value.


Someone who purchases an option contract buys the right to “put away” (sell later) or “call away” (buy later) some fraction of a bitcoin for US dollar at the contract strike price. MPEx contracts are bitcoin-settled, meaning that accounts are credited the profit from a position in bitcoin rather than in fiat currency.

The options are named as follows:

O.USD.<Call or Put><strike><This or Next month>

The strike denotes option contract price, but its exact meaning has changed several times in past, as MPEx had to adapt to rapidly changing Bitcoin price. As of the time of writing, the strike applies to lot of 0.1BTC. So, for example O.USD.C110T is a call struck at 1100 USD/BTC.

Options can be exercised at any time (american style), or they are exercised automatically by MPEx on expiry date. Expiry date is denoted by T or N letter in the end of option name, which means:

'T': expires last Friday of this month, midnight GMT (in between Fri and Sat).

'N': expires last Friday of next month. On last Friday of current month, however, all buy/sell orders are cleared and all 'N' options are moved into 'T' type options. This ensures monthly rotation of 'T' and 'N' options.

A Call contract for example, O.USD.C050T, entitles the purchaser to buy a bitcoin at the price of 500 USD. If the 24-hour weighted price was more than 500 dollars at contract expiry, MPEx will close out the position and credit the contract-holder’s account with the difference between the strike price and market price of bitcoins, converted into bitcoins using the same market price. If the price was 500 or less, the contracts expire worthless.

Calculating profit

A put or a call delivers the right to the contract purchaser to buy or sell the underlying at the strike price - ot exercise the option. On MPEX that option is “exercised” at the time of expiry, but contract holders can also exercise their option contracts at any time of their choosing. Exercising an option (provided that it’s in-the-money) will transfer the difference between the strike price and 24-hour weighted average to the exercising account.

To simplify these first examples, we will trade options valued for 1 BTC, which currently means 10 option contracts (calls or puts). This is because MPEx had set the lot for one put/call to 0.1BTC.

Calls are promise to buy bitcoins later for price set by strike. Thus their intrinsic value in USD is given by current spot price - strike. If the result is negative, calls are wortless. To convert this into into bitcoins, against our buying price for 10 call contracts, gives us profit from exercising or expiring:

profit = (spot - strike) / spot - buyprice

Example: profit for contract-holder of a 10 Call contracts struck at 500 USD, (O.USD.C050T or N) expiring with current price at 900 USD bought at a cost of .1 BTC:

profit = (900 - 500) / 900 - .1 = 0.444444444 - 0.1 = .344444444 BTC

Puts are promise to sell (as if MPOE were buying from you) bitcoins later at strike price. Their intrinsic value in USD is strike - current spot price, and again if this is negative, puts are worthless, giving us complete formula for profit from 10 Put contracts exercising or expiring:

profit = (strike - spot) / spot - buyprice

Example: profit for contract-holder of 10 Put contract struck at 900 USD (O.USD.P090T or N), expiring with the market price at 500 BTC and at a cost of .1 BTC:

profit = (900 - 500) / 900 - .1 = 0.444444444 - 0.1 = .344444444 BTC

Getting long

Options give traders leverage on their BTC holdings. While the topic is far beyond the scope of this document, combinations of in- and out-of-the-money options can be used to build positions sensitive to volatility, changes in volatility, and changes in the rate of change of volatility as well as the price of the underlying asset.

The simplest way to set up a long position in Bitcoin is to go buy some Bitcoins. If you are seeking additional leverage on your investment, you can use options to take a long position.

Breakeven point for 1 call option:

breakeven = strike / (lot - buyprice)

Profit in BTC on exercise of 1 purchased call option:

profit = ((spot * lot) - strike) / spot - buyprice

Where spot is the 24-hour weighted average available at Lot is BTC contracted per option, currently 0.1BTC.

Buying a nearly in-the-money (or barely out-of-the-money) call option (in-the-money meaning that the option under discussion can be exercised for a profit, and out-of-the-money meaning an option that cannot be exercised for a profit) has the benefit that a relatively small movement in the price of the underlying has a greater likelihood of carrying the option just barely out-of-the-money into the realm of profitability than an option that is much further out-of-the-money.

Example: estimate the BTCUSD breakeven for a call option struck at 700 USD ( O.USD.C070T - strike is 70) that costs 0.03 BTC:

breakeven = strike / (lot - buyprice) = 70 / (0.1 - 0.03) = 1000 USD/BTC

To make the computation in other direction - estimate payout at 1000BTC spot price:

payout = ((spot * lot) - strike) / spot = (100 - 70)/1000 = 0.03

If the result is negative, which happens when spot price is less than 700 USD/BTC, exercise or expiration yields nothing. Of course, we strive to get higher payout than was our buying price.

Example: estimate the profit yielded if the same number of dollars were used to go long the underlying (BTC). First case is bitcoins purchased at 700, sold at 900 . Second case is 3 Calls struck at 700 bought at 0.03 each which are in fact 3 contracts to buy 0.1 bitcoin later.

profit = (spot - strike) * BTC purchased

a) p = (900 - 700) * .1 = 200 * .1 = 20 USD

b) p = (900 - 700) * .3 = 200 * .3 = 60 USD

The above examples demonstrate how options can be used to gain leverage on a BTC investment. Where an investment of 70 dollars in BTC would yield a return of 20 dollars after fees, purchasing a Call option struck at 700 USD/BTC for the same amount of bitcoin would show a return of 185%.

Shorting Bitcoin

Buying put options puts one into a short position, which is to say that should you choose to buy puts you would only profit were the price to decline sufficiently to put your options “into the money”. A put option grants the purchaser the right to “put away” the underlying at some price. Consider it an insurance policy against large price declines.

Breakeven point for buying put options:

breakeven = strike / (lot + buyprice)

Profit on exercise of a purchased put option:

profit = (strike - spot * lot) / spot - buyprice

Example: find the breakeven spot price for a put option on a lot of 0.1 BTC struck at 95 dollars (O.USD.P095T or N) bought for the price of 0.04190888 BTC

breakeven = 95 / (0.1 + 0.04190888) = 669 USD/BTC.

Example: find the breakeven spot price for a put option on a lot of 0.1 BTC struck at 140 dollars (P140), bought for the price of 0.03080010 BTC:

breakeven = 140 / (0.1 + 0.03080010) = 1070 USD/BTC

Example: find the profits both above contracts would yield if exercised at a spot price of 700 USD/BTC:

profit = (strike - spot * lot) / spot - buyprice

a) p = (95 - 70) / 700 - 0.04190888 = -0.006 BTC (slight loss)

b) p = (140 - 70) / 700 - 0.03080010 = 0.0691999 BTC or 48.43 USD profit gets added to initial investment of 0.03080010*1400 = 43.12 USD.

To compare with short selling 0.0308 BTC at 1400 and buying them back at 700:

(1400-700)*0.0308 = 21.56 USD profit.

Remember to account for currency trading fees if you plan to convert dollars to bitcoins, short, and then recover profits in dollars again.


We’ve covered the practice of buying puts and calls, and how to calculate their profit and breakeven points. In this section, we address where these puts and calls come from in the first place and how you too can risk large amounts of capital.

During normal operation of the MPOE bot and the Exchange, you will see bids and asks for each strike price offered on the board. The MPOE bot estimates prices at which it is willing to buy and sell each of the option contracts, creates those options on the Exchange, and places sell orders for the relevant puts and calls.

Writing Your Own

How then to get on the lucrative yet risky bandwagon of writing far out-out-of-the-money options and selling them for the same premiums the MPOE bot is raking in every month?

The MPEx trader has 2 options for writing their own contracts: they can submit MKOPT or SPLIT orders to the Exchange.

Example: make 40 call options with a strike of 95 USD/BTC on lots of 0.1 BTC, expiring next month.


Writing contracts with MKOPT requires collateralization in the event that the market moves against your contracts. This is not a concern when buying contracts, as they simply expire worthless when the market moves against you, and you the trader are limited to the purchase price as your downside.

Note! When writing options, you run the risk of losing all collateral.

With options created as described next, you need to decide whether you offer to sell them to MPOE or other market participants, or exercise them yourself at convenient time, or let MPOE to exercise them automatically at expiry time. In both cases you have to weigh the expected profit from your trades or exercises against what part of your collateral may get eaten by exercises of everyone in the market.

Simplest command to create options is MKOPT. For each call created with MKOPT, MPEx moves a number of satoshi equal to the lot size into your OptionsCover account. For each put created with MKOPT MPEx moves a number of satoshi approximately equal to the strike/spot ratio plus a proprietary factor to your OptionsCover account.

Note! Calling MKOPT will charge your account 2% of the collateral required to underwrite the order you are placing as a fee for writing options. Conveniently, MPEx offers a way past this fee in the form of the SPLIT order.

Creating/underwriting options with the SPLIT order bypasses the 2% fee for writing options, but puts you at the mercy of the Exchange for the number of puts delivered. Half of your collateral will be used for calls, and the other used as collateral for the maximum number of puts at the chosen strike you could underwrite with the provided collateral.

Example: use a SPLIT order to write 50 calls at 095 on lots of 0.1 BTC, expiring this month and somewhat fewer than strike/(spot*lot) puts :




Since you’ll be splitting collateral equally to both kinds of options across a given strike price, calling a SPLIT order works the same with either the call or put strike symbol for a given strike. SPLIT takes whole Bitcoins as its collateral argument.

Note: one does not have to sell underwritten options in order to be exercised against. Writing options and providing the required collateral puts those options into the pool from which a proportional part is taken during an exercise event. This process is visible to the collateral holder in the course of the month as collateral value gets updated on account statement. On the expiration date, unused collateral (if anything is left) is then returned to user. In case the sum of exercises is bigger than collaterals (this can happen with calls), the remainder is covered by MPEx under the term "creditor of last resort".

For example with above SPLIT, if current spot price were 900 USD/BTC, you can expect to get 5 PUTs. Let's say you are in bearish mood, and sell all these CALLS for 0.0037 per, get total 0,185 BTC and keep the puts. If indeed the price goes to 700 USD/BTC and you exercise the puts, you'll get (95 - 70) / 70*5 = 1.786 BTC. However, if all the P095s on market will get exercised at this spot price, that will take 1.786 BTC from your collateral as well, so you won't realize any net gain for this leg of the operation. In this way, the profit depends on other market participants (including MPOE) making worse decisions than you. If, additionally, the market is very volatile and goes again up above 950 USD, some part of the 5BTC backing the calls would get eaten when somebody exercises any C095s.

If all of above is a bit mind-boggling, CoinBr offers a calculator on its exercise page, and there are other resources, such as excellent BtcAlpha option analysis tool.