BVOLG15: A Postmortem

BitMEX launched the world’s first Bitcoin historical volatility futures contract called BVOLG15. The contract settles at the BitMEX 30 Day Historical Volatility Index (.BVOL Index) price. This post will serve as a postmortem describing the trading behavior of the first contract, and hopefully further educate traders as to how they can incorporate BitMEX volatility futures contracts into their portfolios.

.BVOL Index measures the annualised standard deviation of the % move between Time Weighted Average Price (TWAP) calculations done on Bitfinex every day from 10:00 GMT to 12:00 GMT. Because .BVOL Index comprises 30 days of price changes, there must be a total of 31 price increments. For BVOLG15, that meant the observation period lasted from 27 January 2015 to 27 February 2015 inclusive.

BVOLG15 was listed on 5 January 2015, meaning for three weeks traders were placing bets purely on their expectations of future realised volatility. Each day after 27 January 2015, a clearer picture was formed as to where 30 day volatility would realise by expiry.


The above graph shows a comparison of .BVOL Index and BVOLG15. BVOLG15 performed as expected. If there are N days until expiry, BVOLG15’s price is composed of N days of realised volatility expectations and (30 – N) days of realised volatility. Even as .BVOL spiked above 150% realised volatility, BVOLG15 did not rise to the same degree because the market did not expect that level of volatility to persist in the future. This is also evident in the volatility of volatility for both .BVOL Index and BVOLG15. The annualised volatility of .BVOL Index and BVOLG15 was 260% and 140% respectively.

Traders who believe they can accurately forecast realised volatility should utilise BVOL futures contracts. Intra-month they discount future realised volatility effectively. Traders need not hold until expiry, but can effectively move in and out of positions as expectations of future realised volatility changes.
This is a link to an Excel spreadsheet showing the .BVOL and BVOLG15 data that was used in the calculations and graph presented in this post.

Crypto Trader Daily – 26 February 2015

Price Action

A brief spark of action took the price down to $232 on Bitfinex, but it quickly recovered back to $237. All in all another snorefest.

Trade Ideas

Keep an eye on BVOLG15, which is coming up for expiry on Friday. The .BVOL index has dropped considerably in the last two days from 130% to 90%. There might still be a chance to catch some sleepy traders off guard.

In the News

RE/MAX to accept Bitcoin (CoinTelegraph)

Bank of England sees a future in Bitcoin (CoinTelegraph)

Utah authorises study on accepting Bitcoin (Washington Post)

Crypto Trader Daily – 17 February 2014

Price Action

Extend and pretend is the name of the game from Europe. Another critical meeting, and another episode of can kicking. No new news on Greece, and another day of $230-$240 range bound trading for Bitcoin. The Chinese New Year lull has officially set in.


Trade Ideas

Selling realised volatility for February during these times is prudent. Trade the BVOLG15 (27 February 2015) realised volatility futures contract. After an eventful end of January and start to February the contract has been bid up. If trading continues this way until the end of next week, realised volatility should decline.


In the News

Netagio shutters Bitcoin exchange (ConDesk)

2,180 Bitcoin foundation members barred from voting (CoinTelegraph)

VICE interviews Winklevoss twins (VICE)

BitMEX Launches Bitcoin Volatility Futures Contracts

We are proud to announce the launch of the world’s first Bitcoin 30 Day Historical Volatility Futures Contract (BVOL). The product will allow traders to speculate on the 30 day historical volatility of Bitcoin / USD as observed on Bitfinex. Traders will now be able to profit on the increase or decrease of Bitcoin price volatility without taking a position in the exchange rate.

Wikipedia defines volatility as, “a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices.” BitMEX has constructed a 30 day historical volatility index by taking the daily 10:00 GMT – 12:00 GMT 1 minute Time Weighted Average Price (TWAP) for Bitcoin / USD on Bitfinex. Each daily index value represents the realised volatility over the past 30 days. The futures contract on settlement day will equal the index value on that day.

The futures contracts have the symbol BVOL and expire on the last Friday of every calendar month at 12:00 GMT. The contract is quoted in annualised volatility % points. A futures price of 50.00 corresponds to an annualised volatility of 50.00%. For each 1% point movement, traders stand to make or lose 0.01 Bitcoin.

The futures contracts will be margined the same as all other BitMEX futures contracts. Initially up to 5x leverage will be allowed on this product. Margin, profit, and loss are all denominated in Bitcoin. As the liquidity grows, we will gradually increase leverage on this product.