When to close out my short position on Bitcoin?

[Brendan Burgess]

I took out a spread bet on Bitcoin at $14,600

I know that it will eventually fall to zero but I can't forecast the short term gyrations of something so irrational, and when something has no basis at all for valuing it, it could rise to $50,000 before falling to zero.

It rose for a little while after that, so I was losing money on paper. ( I had set a stop at $34,600.)

Then it fell to $6,000 - I considered closing out, but didn't. After all, if I know it will fall to zero, why would I close out such a position? By closing out, I would be effectively paying $6,000 for something worth nothing.

Then it rose back again close to $12,000 and I sort of half regretted not closing out at $6,000.

Now it's back down to $9,000.

In theory I should wait until it gets to zero to maximise my winnings.

But, in practice, if I had no spread bed would I short Bitcoin at $3,000? I wouldn't because the maximum profit would be $3,000 but it could go bananas again and rise to $33,000 - causing me to lose $30,000.

So what is the right price to close out the position?

Brendan

 

[elacsaplau]

Then it fell to $6,000

Simply not true.

I think there was support for Bitcoin at $10k for the last 2 months.

This support level stuff is utter nonsense.

 

[Duke of Marmalade]

On Feb 6th it was intra day below 6,000.

I myself on the Boss’ advice in this forum shorted at around 14,600 but closed out at around 8,600 and didn’t go back in.

A key issue is to understand how much you have at risk with a FSB. This is determined by the Stop Limit. So your current bet can be interpreted as betting around 25k with upside of 8,600. That doesn’t sound right. But if you were to adjust your SL to say 14,000 then you are betting 5,400 for the same upside. Might go back in again myself on that basis.

 

[elacsaplau]

On Feb 6th it was intra day below 6,000.

That's gas - I still hold a few of these things and missed that gyration. I've learned not to look at the price too often. Obviously, there was robust support at $5,920

 

[Brendan Burgess]

So your current bet can be interpreted as betting around 25k with upside of 8,600. That doesn’t sound right. But if you were to adjust your SL to say 14,000 then you are betting 5,400 for the same upside.

Hi Duke

Forget about my history for the moment.

Am I prepared to short Bitcoin at its current price of $9,000?

If I set a stop loss at $10,000 , I could gain $9,000 but only lose $1,000. However, there would be a very high probability of losing $1,000.

If I set a stop loss at $109,000, I am putting $100,000 at risk to gain $9,000. There is a very low possibility of losing that bet.

Brendan

 

[Duke of Marmalade]

Hi Duke

Forget about my history for the moment.

Am I prepared to short Bitcoin at its current price of $9,000?

If I set a stop loss at $10,000 , I could gain $9,000 but only lose $1,000. However, there would be a very high probability of losing $1,000.

If I set a stop loss at $109,000, I am putting $100,000 at risk to gain $9,000. There is a very low possibility of losing that bet.

Brendan

I certainly presented an oversimplifiation. With ordinary betting it is all or nothing which is unlike FSB. But basing your decision on what might happen if the price went to 33,000 without Stop is not rational either. Your original proposition can be summed up as putting 20,000 on the table with a potential upside of 14,600. You can always reset that position at almost any price level. Thus say it falls to 3,000 then you should short 4.87 (14,600/3,000) BTC and put a Stop at +4,106 (20,000/4.87).

My understanding is that you would still think the odds are strongly in your favour though naturally not so much so as when the price was 14,600.

 

[Brendan Burgess]

But basing your decision on what might happen if the price went to 33,000 without Stop is not rational either.

I don't get this bit?

I sold at 14,600. I put up $20,000 so I would close out at $34,600 and lick my wounds.

I would still be very sure that it would drop to zero, but would not be prepared to take the risk that I might be wrong.



Brendan

 

[Fella]

I took out a spread bet on Bitcoin at $14,600

I know that it will eventually fall to zero but I can't forecast the short term gyrations of something so irrational, and when something has no basis at all for valuing it, it could rise to $50,000 before falling to zero.

It rose for a little while after that, so I was losing money on paper. ( I had set a stop at $34,600.)

Then it fell to $6,000 - I considered closing out, but didn't. After all, if I know it will fall to zero, why would I close out such a position? By closing out, I would be effectively paying $6,000 for something worth nothing.

Then it rose back again close to $12,000 and I sort of half regretted not closing out at $6,000.

Now it's back down to $9,000.

In theory I should wait until it gets to zero to maximise my winnings.

But, in practice, if I had no spread bed would I short Bitcoin at $3,000? I wouldn't because the maximum profit would be $3,000 but it could go bananas again and rise to $33,000 - causing me to lose $30,000.

So what is the right price to close out the position?

Brendan

Bitcoin is worthless

You sell it at zero , it will 99% be zero by the end of 2018

Would you pay $9000 for a bag of hot air ?

Fella

 

[Duke of Marmalade]

I don't get this bit?

I sold at 14,600. I put up $20,000 so I would close out at $34,600 and lick my wounds.

I would still be very sure that it would drop to zero, but would not be prepared to take the risk that I might be wrong.



Brendan

You can change your Stop Limit at any time at no cost. You originally put 20K on the table with potential to win 14.6K. That proposition has changed. You now have 25.6K on the table to win 9K. I would be tempted, if I were you, to change the Stop to 14.6K. That way you are staking 5.6K to win 9K. You can pocket all your original stake and let the bet run.

When it falls to 3K you can increase your stake but at the same time reduce your Stop to keep the amount on the table at a level you are comfortable with.

In short (pardon the pun) I don't think that with your conviction that there is ever a price that you should cut and run. But you should adjust the parameters to fit your utility preference. I don't think being short at 3,000 with a Stop at 34,600 is such a fit but with the Stop at 6,000 you are much as where you started and should even consider upping your stake.

 

[Brendan Burgess]

Would you pay $9000 for a bag of hot air ?

No, which is why I am not closing out at $9,000.

If I had noticed it on the way up, I would have shorted it at $500 and I would have been wiped out. I couldn't countenance that people would be foolish enough to pay $1,000 for a bag of hot air.

There is always the temptation to take profits which I will probably resist until it hits $3,000.

Brendan

 

[tecate]

Bitcoin is worthless ..You sell it at zero , it will 99% be zero by the end of 2018

Shur that's it settled then. Brendan is already of that opinion - so hold until it reaches zero and maximise profit

 

[Brendan Burgess]

Guys, I am trying to keep this thread on topic - what should the close out strategy be?

I have deleted the posts speculating about short term movements in Bitcoin.

But they are interesting, so feel free to post them in another thread.

Brendan

 

[Gus1970]

Bitcoin had 4 previous “bubbles” that burst and recovered to create the next one, tulips had one.

Also, tulipmania story is full of hearsay, this is an well resarched article on the topic

https://www.google.ie/amp/s/theconv...-dutch-financial-bubble-is-mostly-wrong-91413

 

[Duke of Marmalade]

But it's even harder for me as a seller in that my gains are limited and my losses are potentially unlimited.

Brendan

With a Stop Loss Limit that is not the case.

 

[tecate]

But it's even harder for me as a seller in that my gains are limited and my losses are potentially unlimited.

But your losses are not unlimited as you are confident it will go to zero??

 

[Gus1970]

So what is the right price to close out the position?

Honestly, this question sounds more like an "i told you so" than a genuine request for help.

But I will bite and tell you that shorting is a very dangerous activity when dealing with highly volatile assets, hence the right price at which you should close your position depends entirely on the amount of risk you are willing to take.

You obviously should reduce your position and take some profits, unless you put a small 100 euro bet and you are only playing

 

[Brendan Burgess]

With a Stop Loss Limit that is not the case.

But Duke, I wonder what would happen as I approach my stop loss limit? Would I be tempted to think that it could not rise any further and just increase the limit?

Brendan

 

[1dave123]

Brendan - have you considered closing out part of your position? So for example close out ~40% of your bet - take the profit on that 40% and let the other 60% ride until it reaches $3000.

U can chose whatever % you want to close.

 

[Duke of Marmalade]

But Duke, I wonder what would happen as I approach my stop loss limit? Would I be tempted to think that it could not rise any further and just increase the limit?

We're into mind games then. The point I am making is that the well accepted fact that short positions have effectively unlimited loss potential is negated by the Stop Loss facility in IG. Consider those smart guys who shorted Irish banks. It could have gone horribly wrong for them and they could have found themselves chasing a soaring price to try and close out.

 

[Brendan Burgess]

Brendan - have you considered closing out part of your position? So for example close out ~40% of your bet - take the profit on that 40% and let the other 60% ride until it reaches $3000.

Yes, I have.

But my reasoning is that a good bet should not be closed early. Whatever the right time is, it's the right time for all of my bet.

But again, emotion, might take over and I might close out half of it.

Brendan