- MOVE contracts have not yet launched on FTX. This article describes how they are intended to work once they do.
- None of this is investment advice.
- Much of the below analysis ignores any difference between futures and spot prices, and ignores the effects of fees.
- MOVE products, like the rest of FTX, are not being offered to US users.
What are MOVE contracts?
MOVE contracts represent the absolute value of the amount a product moves in a day. So if BTC moves $125 from the beginning to end of a day, the BTC-MOVE contract will expire to $125 whether BTC went up or down.
Getting long MOVE contracts means you will win if BTC moves a lot the next day in either direction. Getting short MOVE contracts means you will win if BTC is relatively stable.
How do MOVE contracts work?
Take, for example, a BTC-MOVE 2018-08-30 contract. This contract trades during the previous day (2018-08-29) as a futures market. At the end of 2018-08-30 it expires to the absolute value of the BTC move from the start of 2018-08-30 until the end of 2018-08-30. So if BTC goes from 9400 to 9650 during 2018-08-30 MOVE expires to $250; if BTC goes from 9400 to 9300 MOVE expires to $100. This means that MOVE expires to a positive number whether BTC goes up or down; its price is determined by how much BTC moves, not which direction it moves in.
What does MOVE expire to?
In particular, MOVE products expire to the absolute value of the difference between the TWAP price of underlying over the first hour and the TWAP price of the underlying over the last hour of their expiration day, measured in UTC.
There will be a new MOVE contract every day to trade the next day's move. Every MOVE contract's underlying product is the FTX BTC spot index, and all other references to BTC in this article really mean the BTC index.
How does MOVE relate to options and volatility?
MOVE contracts are straddles with a strike price equal to the TWAP of the first hour of their expiration day and underlying expiration price equal to the TWAP of the last hour of their expiration day.
The more volatile a product is, the higher its expected move. If you assume that products follow a Gaussian distribution then the expected value of the absolute value of a product's move should be sqrt(2/pi) times the product's daily volatility. This means that MOVE contracts should be worth roughly 80% of the product's daily volatility.
How does FTX show MOVE PnL?
Until a MOVE contract expires, its PnL will be marked to market--meaning that your PnL will be (number of MOVE contracts bought) * (mark price - purchase price).
Once a MOVE contract expires--which will happen at the end of its expiration day UTC--it will be replaced in your account with an amount of USD equal to its expiration price.
How does margin work for MOVE?
Each MOVE contract requires margin based on the price of the underlying index. This means that a BTC-MOVE contract--representing the one-day move of one BTC--requires roughly the same amount of margin as a BTC-PERP contract.
For instance, if you select 20x leverage and want to buy one BTC-MOVE contract when BTC-MOVE is trading at $150 and BTC is trading at $10,000, you will post $500 of collateral. This means that the margin treatment of a MOVE contract depends only on its underlying index's price and not at all on the price of the MOVE contract itself.
The high leverage limits, initial margin factor, etc. for BTC-MOVE are the same as those for BTC-PERP; they're all marked to the BTC index price.
This is because the amount that a MOVE contract's price will change is the same as the amount the underlying index will change, and so the risk profile is the similar.
The price of the underlying index is listed on the market page for the MOVE contract.
However, if you are LONG a MOVE contract, the amount of margin you have to post is capped at the mark price of the MOVE contract. This means that your margin posted is whichever is smaller--the margin you'd need to post based on the index price, or the mark price of the MOVE contract if you're long.
The fees charged on MOVE contracts are the same in magnitude as the fees charged on the underlying spot market. So if your fee rate is 0.04% and you buy one BTC-MOVE when BTC-MOVE is trading at $250 and BTC is trading at $10,000, then your fees will be 0.04% * $10,000 = $4.