Home Gold Knightsbridge Guide: Bitcoin, Time Decay and Futures

The time to expiration (or time decay) of a futures contract is one of the most important factors that affects its value. As the expiration date approaches, the value of the futures contract will decrease, as it becomes less likely that the contract will be exercised. This is because the buyer of the futures contract will have less time to profit from the contract, and the seller of the futures contract will have less time to incur losses.

The rate of time decay is also affected by the volatility of the underlying asset. If the underlying asset is volatile, the time decay will be faster, as there is a greater chance that the price of the asset will move significantly before expiration.

For example, let’s say you buy a futures contract on gold that expires in one month. If the price of gold stays the same, the value of your futures contract will decrease by about 10% in one month. However, if the price of gold increases by 10% in one month, the value of your futures contract will decrease by about 5%.

There are a few things that you can do to mitigate the effects of time decay:

  • Buy longer-dated futures contracts: The longer the expiration date, the slower the rate of time decay.
  • Buy options: Options are contracts that give you the right, but not the obligation, to buy or sell an asset at a certain price on or before a certain date. Options are less affected by time decay than futures contracts, as they give you more flexibility.
  • Use a hedging strategy: A hedging strategy is a way to reduce your risk by taking offsetting positions in different assets. For example, you could buy a futures contract on gold and sell a futures contract on silver. This would reduce your risk if the price of gold goes down, as the loss on the gold futures contract would be offset by the gain on the silver futures contract.

It is important to understand how time decay affects the value of futures contracts before you trade them. By understanding this factor, you can make more informed trading decisions and reduce your risk.

The concept of time decay is also applicable to Bitcoin futures. As the expiration date approaches, the value of a Bitcoin futures contract will decrease, as it becomes less likely that the contract will be exercised. This is because the buyer of the Bitcoin futures contract will have less time to profit from the contract, and the seller of the Bitcoin futures contract will have less time to incur losses.

The rate of time decay is also affected by the volatility of Bitcoin. If Bitcoin is volatile, the time decay will be faster, as there is a greater chance that the price of Bitcoin will move significantly before expiration.

For example, let’s say you buy a Bitcoin futures contract that expires in one month. If the price of Bitcoin stays the same, the value of your Bitcoin futures contract will decrease by about 10% in one month. However, if the price of Bitcoin increases by 10% in one month, the value of your Bitcoin futures contract will decrease by about 5%.

Start trading with the professionals, become part of the Knightsbridge Traders Discussion Group https://t.me/XTknights

There are a few things that you can do to mitigate the effects of time decay in Bitcoin futures:

  • Buy longer-dated Bitcoin futures contracts: The longer the expiration date, the slower the rate of time decay.
  • Buy Bitcoin options: Bitcoin options are contracts that give you the right, but not the obligation, to buy or sell Bitcoin at a certain price on or before a certain date. Bitcoin options are less affected by time decay than Bitcoin futures contracts, as they give you more flexibility.
  • Use a hedging strategy: A hedging strategy is a way to reduce your risk by taking offsetting positions in different assets. For example, you could buy a Bitcoin futures contract and sell a futures contract on another asset, such as gold. This would reduce your risk if the price of Bitcoin goes down, as the loss on the Bitcoin futures contract would be offset by the gain on the other futures contract.

It is important to understand how time decay affects the value of Bitcoin futures contracts before you trade them. By understanding this factor, you can make more informed trading decisions and reduce your risk.

Here are some additional things to keep in mind about time decay in Bitcoin futures:

  • The rate of time decay is not constant: The rate of time decay will be faster when Bitcoin is more volatile and slower when Bitcoin is less volatile.
  • Time decay is not the only factor that affects the value of Bitcoin futures contracts: The price of Bitcoin will also affect the value of Bitcoin futures contracts. For example, if the price of Bitcoin goes up, the value of a Bitcoin futures contract will also go up.
  • Time decay can be a good thing or a bad thing: Time decay can be a good thing if you are selling Bitcoin futures contracts. This is because the value of your contracts will increase as time passes. However, time decay can be a bad thing if you are buying Bitcoin futures contracts. This is because the value of your contracts will decrease as time passes.

Overall, it is important to understand how time decay affects the value of Bitcoin futures contracts before you trade them. By understanding this factor, you can make more informed trading decisions and reduce your risk.

Perpetual futures

Perpetual futures and regular futures are both derivatives that allow traders to speculate on the future price of an asset. However, there are some key differences between the two.

Perpetual futures are contracts that do not have an expiration date. This means that they can be held indefinitely, and traders can roll them over to a new contract at the end of each trading day. Perpetual futures are also typically settled in cash, rather than in the underlying asset.

Regular futures have an expiration date, after which they must be either closed out or settled by delivery of the underlying asset. Regular futures are also typically settled in the underlying asset, rather than in cash.

Here is a table that summarizes the key differences between perpetual futures and regular futures:

FeaturePerpetual FuturesRegular Futures
Expiration dateNoYes
SettlementCashUnderlying asset
RolloverYesNo

drive_spreadsheetExport to Sheets

Advantages of perpetual futures

  • Perpetual futures can be held indefinitely, which gives traders more flexibility.
  • Perpetual futures are typically settled in cash, which can be more convenient for some traders.
  • Perpetual futures can be rolled over to a new contract at the end of each trading day, which can help to reduce risk.

Advantages of regular futures

  • Regular futures are settled in the underlying asset, which can be more attractive to some traders.
  • Regular futures have a more defined end date, which can provide more certainty for traders.

Which type of futures is right for you?

The best type of futures for you will depend on your individual trading goals and preferences. If you are looking for a more flexible trading instrument that can be held indefinitely, then perpetual futures may be a good choice for you. If you are looking for a more traditional futures contract that is settled in the underlying asset, then regular futures may be a better option.

Ultimately, the best way to decide which type of futures is right for you is to do your own research and understand the risks and benefits of each type of contract.

Start trading with the professionals, become part of the Knightsbridge Traders Discussion Group https://t.me/XTknights

Shayne Heffernan

You may also like

logo-white

Your Trusted Source for Capital Markets & Related News

Latest Articles

© 2023 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.