Original author: BitMEX
Welcome back to our weekly options trading strategy analysis. In this issue, we will explore an interesting arbitrage opportunity involving BitMEX’s options market and prediction platform Polymarket, using a combination of a buy spread strategy and a prediction market position.
Market Conditions
Current market conditions present an attractive arbitrage opportunity:
BitMEX options market (expiring on December 20):
$3,850 Call Option: 1 contract costs $75.9
$3,950 Call Option: Sell price of 1 contract is $32.5
Polymarket (expiring on December 20):
The no contract price on whether ETH will go above $3,900 on December 20 is 57 cents.
A $25 position, if successful, would have an expected profit of **$ 44.98** (a return of 75.4% ).
Arbitrage strategies
The strategy combines positions in BitMEX options and Polymarket. Here is a detailed strategy breakdown:
BitMEX Spread Options:
Buy 1 ETH 20 Dec $3850 Call Option
Sell 1 ETH 20 Dec $3950 Call
Polymarket Positions:
Buy the $25 NO contract and buy ETH below $3,900 for 46 cents.
Potential Return: If ETH stays below $3,900 on Dec 20, the projected return is $44.09.
Profit scenario
Risk Considerations
Calendar risk: BitMEX options expire at 08:00 UTC on December 20, while the Polymarket position is settled at 12:00 ET (noon) on December 20. Since there is a 4-hour gap between the two, price fluctuations need to be closely monitored as they may affect profitability.
Liquidity risk: Ensure that there is sufficient liquidity in both markets. Pay attention to the bid-ask spread and execution costs, as these factors may affect the final profit calculation.
Market Volatility: High volatility can impact the premium of options. Monitor changes in implied volatility and adjust position sizes based on market conditions.
Summarize
This strategy provides an interesting arbitrage opportunity, combining positions on BitMEX options and Polymarket. By using option spreads, we have created a strategy with multiple profit scenarios and clear risk parameters.
This arbitrage opportunity looks particularly attractive given current market pricing. However, as always, careful position sizing and risk management are critical. Monitor the dynamics of both markets closely and be prepared to adjust positions as market conditions change to maximize profits.
