You are a Miner and are expected to receive 1 BTC per day for the next 10 days for your Mining activities. You've forked out $10,000 for that Mining Rig and you need to pay your parents back fast. The price signals are very negative as you suspect that the price is over inflated at US$1000/BTC.
As your payout is in bitcoin, a falling bitcoin price would significantly affect your mining returns.
You place a 10 BTC Short Position as a hedge at 10:1 Leverage. Over the next 10 days the price halves to US$500.
- Position Size: 10 BTC
- Deposit Required: 10 x (1+0.15) / 10 = 1.15 BTC
- Position Profit = ( ( 1000 x 10 ) / 500 ) - 10 = 10 BTC
Daily Interest = 0.05 BTC per day (x9 days)
Open/Close Fee = 0.05 BTC (x2)
Overall Profit = 9.45 BTC*
* based on the following assumptions:
- Volatility multiplier of 15%
- Daily Interest Rate of 0.5% (first day free)
- Trade fee of 0.5% (Open Fee, Close Fee)
Your hedge was perfect... Your initial 10 BTC without the hedge would now be worth US$5,000. After the hedge you now hold 19.45 BTC.
The value of those bitcoins at the new price is US$9,725.
For further information on Profit/Loss Calculation, click the link below -