Quote from: theta on February 13, 2014, 09:21:05 PM

You guys assume that he didn't delta hedge the options, i.e. he didn't sell the exact amount of BTC needed to lock the gains from the options mispricing, as I explained earlier. I'm pretty sure that's exactly what he did and he locked a gain for any price of BTC < $5000, with the additional twist of counterparty risk (if the BTC was sold in the same exchange that's less of a problem).

Quote from: theta on February 09, 2014, 10:45:01 AM

Quote from: Bugpowder on February 05, 2014, 08:38:35 PM

But expiry in end of month, so by then,
If BTC drops to $700, (5000-700)/700*.1BTC = .614, or about a 25,000*(.49-.614) = 3100BTC loss
If BTC rises to $1000, (5000-1000)/1000*.1 = .4, or 25,000*(.49-.4) = 2250BTC gain

So if BTC is at $700, he has a 3100*$700 = $2170000 loss and if BTC is at $1000 he has 2250*$1000=$2250000 gain. Selling $2.2m worth of BTC at $850 or higher guarantees a riskless profit. It seems that the market making bot mispriced the options and someone took advantage of that ensuring an arbitrage.

I seriously doubt this is what actually happened. This position would be very difficult to hedge due to liquidity. A $2.17m loss is not easy to cover with a price movement from $850 to $700...