Deribit Portfolio Margin

This post will describe the Portfolio Margin system used at Deribit, a bitcoin derivatives exchange. Portfolio margin is a risk-based margin policy that aligns margin requirements with the overall risk of a portfolio. Portfolio margin usually results in significantly lower margin requirements compared with the sum of margin requirements on individual positions. If a portfolio is long and short, portfolio margin can allow the risk of positions to be “netted off” which may result in an lower overall margin requirement.

I’m most familiar with the CME SPAN margin system which is used to evaluate the risk of futures and options portfolios, but the same general principals apply to Deribit portfolio margin.

Deribit users can request to have portfolio margin applied to their account by e-mailing To qualify, Deribit users must maintain a minimum net equity of at least 0.5 bitcoins, must demonstrate some experience trading options, and declare to have understanding about the concept of portfolio margin.

Here is how Deribit determines portfolio margin:

  • maximum price move of +/- 10.00%
  • maximum implied volatility change of SQRT (30/days to expiration)*27.00%. Example: options expiring in 30 days: IV change of maximum 27.00%, options expiring in 15 days: IV change of maximum SQRT (30/15)*27.00%
  • Contingency component of 0.5% of underlying value of all options in portfolio. Example: you have 200 options in your position (long and short), 0.5% of 200 BTC = 1 BTC is added to the portfolio margin calculation.
  • Contingency component of 1.00% of underlying value is added for offsetting futures. Example: you are long 100 BTC in Future A, and short 100 BTC in Future B, then 1.00%*100 BTC will be added to the portfolio margin calculation.
  • Contingency component of 0.00% for VEGA’s offsetting in different expirations. Example: you are net long 10 VEGA in expirations A/B/C, and net short 10 VEGA in expirations D/E/F, we will add a contingency of 0.00% thereof to the portfolio margin calculation.
  • Initial margin is Maintenance Margin + 30%. Example: If Maintenance Margin is 10 BTC, Initial margin will be 10 BTC+30% = 13 BTC.

Deribit also notes that when liquidating positions, it will start with futures first. This is presumably because the futures contracts are more liquid. Deribit also says that when margin levels are breached, they may liquidate futures first, but may also add futures positions if it reduces overall portfolio risk. For example, if a portfolio is net short puts, Deribit may add short futures instead of buying back puts to achieve minimum margin requirements.

Enbridge Income Fund Good Deal or Bad Deal?

Enbridge (ENB) has announced this morning it will acquire all the outstanding shares of Enbridge Income Fund (ENF). The deal will see each common share of ENF exchanged for 0.735 of a common share of ENB and $0.45 cash. With ENB trading this morning at 34.10, this deal is worth $25.5135 for each ENF share.

In addition, ENF shareholders will be entitled to ENB’s fourth quarter dividend and ENF’s monthly dividends through to closing of this deal. If the deal closes as expected before the record date for Enbridge’s fourth quarter dividend, expected to be November 15, 2018, to be paid in early December, an ENF shareholder will receive, as an ENB shareholder, the ENB December Dividend and the ENF dividend to be paid in November to ENF shareholders of record on October 31, 2018. In the event the Arrangement closes after the record date for the ENB December Dividend, the Cash Component will be increased for the ENB December Dividend based upon the Agreed Exchange Ratio less any dividends paid by ENF to its shareholders after November 30, 2018.

This deal is part of a broader industry trend for pipeline companies to buyout their master limited partnership units after tax changes and as the investment vehicles become less popular. Enbridge has previously announced the buyout of Spectra Energy Partners.

Is this a good deal for ENF shareholders?  Probably not. But tax rules are changing and it has become less tax advantageous for pipeline companies to list MLPs or income trusts, so the parent companies are buying back their listed pipeline MLPs.

Enbridge Announces Definitive Agreement to Acquire All Public Equity of Enbridge Income Fund Holdings Inc., Achieves Significant Milestones Toward Corporate Structure Simplification

CALGARY, Sep. 18, 2018 (Canada NewsWire via COMTEX) — Enbridge Inc. (ENB) (Enbridge) and Enbridge Income Fund Holdings Inc. (ENF) (ENF) today announced that they have entered into a definitive arrangement agreement (the Agreement) under which Enbridge will acquire all of the issued and outstanding public common shares of ENF (the Arrangement), subject to the approval of ENF shareholders.

What is a Market Maker?

A market maker quotes both buy and a sell prices in order to profit from the spread between bids and offers and also from the spread between a price quoted and a reference or theoretical price.

The bid-offer spread is the difference between the highest buy prices and the lowest sell prices. For example, a market maker might quote a bid price of $1 and a offer price of $2. This means customers can either sell at $1 or buy at $2. The goal of a typical market maker is to post prices that will attract interest on both sides of the market (prices that attract buyers and sellers) and therefore profit from the difference between those who buy and those who sell.

A market maker can also price their market based on a benchmark or reference price. This price could be a liquid benchmark or a theoretical price.  For example, if a merchant can buy goods for $1 from a supplier, while transportation, storage, and other costs come to 20 cents, they might be willing to sell to local customers for $1.50, which would guarantee the merchant a profit of 30 cents. If the supplier’s price changes to $1.30, then the merchant might choose to adjust their retail price to $1.80 to ensure the same profit margin, even if the merchant doesn’t buy any more goods from the supplier in the meantime.

A bookie quoting betting odds is also a type of market maker. Even without making trades with other bookies, a book maker can use the odds competitors are posting to set their own prices. If a large Las Vegas casino is quoting the Yankees to win the World Series at decimal odds of 20, the local bookie might offer odds of 15. Although this wouldn’t guarantee a profit for the bookie, it would provide a betting market for local customers. If the local bookie can post odds for a variety of baseball teams, they might be able to attract bets on many teams teams and therefore get closer to making a constant spread on all customer bets.

Posting a Fixed Odds Bet

The 2018 PGA Tour Championship is being held next week and I’m pretty excited to watch who wins the tournament, but also who wins the FedEx Cup $10 million bonus check! In this post I’ll describe how I created my own odds for this tournament and posted them on CoinRoster just like a bookie.

Since the winner of the Tour Championship is a widely followed bet, its a bit easier for me to determine fair odds. I can use an odds website such as Odds Checker to find out what the odds might be and I can also use my favorite sportsbook and base my own odds on theirs.

After reviewing the odds posted elsewhere, I create a quick spreadsheet to do some math. I make a list of 18 players with their associated decimal odds, and then in another column I convert their decimal odds into percentage odds. Now I can sum the percentage odds to see the total implied odds in percentage terms. It turns out, the 18 players I listed have a combined 94%  implied chance. CoinRoster only allows me to post a maximum of 20 outcomes, so since there are 30 players competing in the tournament, I must also post odds for “Any Other Player” which will payoff if any other player not on my list of players wins the tournament.

To calculate what odds I should apply to the Any Other Player option, I can simply take the difference between 100% and the sum of the percentage odds for all the players I’m posting odds for. This comes out to 6% (100 – 94).  The decimal version of 6% odds is 16.66 (1/0.06). But if I post odds of 16.66 for the Any Other Player option, it will leave no potential profit for me, so I decide to offer odds of 10 for Any Other Player. These odds imply a 10% chance that Any Other Player wins the tournament.

I add Any Other Player at 10 on my spreadsheet of odds. Now I will sum all my odds (all players plus Any Other Player option) to see a total of 104%. This means that with the odds I’m posting, I’m building in a theoretical 4% spread for myself.

Click Here to download the spreadsheet I made displaying my odds calculations

Posting the odds as described above will not guarantee a 4% profit for me though. 4% guaranteed will only happen if the money bet on each outcome I’m listing is made in exact proportion to the odds being offered. For example, to guarantee the 4% implied spread, I would need bettors to place 10% of their money on the 10 to 1 odds, and 5% of their money bet on the 20 to 1 odds. Any other configuration of money bet will result in me taking the risk that the outcome with the most money bet becomes the winning outcome, in which case I will may loose money overall. This is the principal risk to the market maker. So the goal of a good odds maker should be to post odds that get action on both sides (or all sides) of a bet, so the risk is distributed in a way related to the underlying chances, thereby spreading the risk and getting close to the theoretical 4% edge.

Now that I have a list of my odds in excel, I’m now going to post those odds on CoinRoster and decide how much risk I’d like to take.

The first thing I do on CoinRoster is log into my account and click on the Create Contest link from the main menu. This brings me to the create contest page where I first need to choose a contest type. I’m choosing “MISC” as my contest type since this is the free form contest where anything can be posted. I type in the title and description of my bet, and then choose a registration deadline of 7am on the Thursday the tournament begins and a settlement deadline of Monday night following the tournament close. The registration deadline is the time after which no more bets are allowed, and the settlement deadline is the time when this bet will be settled and winning bets will be paid off. I choose Monday night for a settlement deadline in order to compensate for weather delays that would result in a Monday finish.



After filling out the details of the create contest form, I’m going check the “fixed odds” box and then paste each player name and their associated odds from my spreadsheet into the create contest form. Then I choose the maximum amount I’d like to risk, which is 0.1 bitcoins, and the minimum wager amount which is 1 satoshi. From the “settlement type” option, I’m going to choose crowd settled and I’m going to make this a public contest.

Once I click the Create Contest button, the contest will be created and the amount I’m risking (0.1 bitcoins) will be taken from my account. If it turns out that I don’t get enough action to require my full 0.1 bitcoins, the difference will be returned to me at the settlement deadline, but in the meantime the entire risk is being held by CoinRoster.



The bet is also not yet live, once I click the create contest button, a message is displayed telling me that the contest needs to be approved by an admin. Once this is done, my contest is live and can be viewed by any user and bets can be placed. Click here to view this contest.

A few things to note about the odds I have posted. At the time of writing, it seems sports books are offering 15 to 1 odds that Tiger Woods will win this tournament. However, I would love to see Tiger win again, so I’m offering 25 to 1 odds on Tiger, better than any other sports book, to encourage users to bet on him. Kind of a little hedge bet for myself. Feel free to take advantage of these great Tiger Odds.

Also, CoinRoster offers free bitcoins to new users, check their homepage before signing up to take advantage of their latest offer. Using their freeplay is a great way to play for free and hopefully win some bitcoins!

Crypto Interest Rates Soar

A big spike in the rate of interest being paid to Ethereum and Litecoin lenders is being shown on Bitfinex this morning. At the time of writing, rates have jumped up to 0.05% per day on ETH and 0.0443% per day on LTC. This translates into simple annual rates of 18.25% for ETH and 16% for LTC. BTC lending rates on Bitfinex remain lower, but have also moved up over the past several days, now reaching 0.0174% per day (6.35% annualized).

Crypto market watchers should notice that investors lending out their crypto balances as margin on exchanges are demanding higher rates as the price of crypto currencies has been declining. This makes sense since I’d want a higher rate to lend my crypto as I expect the value of that crypto to be lower in the future since I want to be compensated for the risk of declining crypto prices.

On Poloniex, the rate for BTC loans remains near 0.0061% per day, but the interest rate for DOGE (which has been the best performing major crypto currency over the past month) is commanding interest rates of 0.60% per day, which translates into over 250% annualized.

These wild rates might not last very long, but its informative to see how markets are reacting to the expectation of lower crypto currency prices. Borrowers (speculators) seem willing to pay higher rates for cryptos they expect to decline in value, and lenders seem willing to facilitate these loans as long as rates rise to compensate.

For more information on crypto margin lending, see my previous post.



Comparing CoinRoster Prices to Market Odds

This post is about trying to beat the odds on CoinRoster daily fantasy golf, a game where the fantasy points are determined based on score to par. The worst score to par becomes zero and each fantasy point is awarded based on the difference from the worst score. For example, if the last placed player has a real world score to par of +4 and the first placed player has a score to par of -10, then the first placed player will have 14 fantasy points. All other players are assigned a relative point value.  Six players are drafted to each roster, so the total score of each roster is the sum of the individual scores of all players on each roster.

My goal is to find some drafting strategies that take advantage of the difference between the price of golfers available to draft on CoinRoster versus the odds of betting on golfers to win the tournament.

The price of each player in the CoinRoster draft is relative to their world golf ranking. But I wondered how to determine whether this is a good price or a bad one? And which factors should I consider while attempting to make this determination?

I have compared the prices of the players available to draft with their odds of winning the tournament. I know from previous research that the odds of each player is related to their expected relative score to par.

I made a list of all players available to draft using excel with their associated price on CoinRoster, then I calculated the percentage chance implied by the prices of each players in the draft by taking their drafting price divided by the sum of all player prices. So if a player costs $3000 to draft and the sum of all players prices is $80,000, then this implies 3.75% ($3,000 / $80,000).

By finding this drafting price ratio, it gives me an “implied” percentage chance of each player having the most fantasy points based on CoinRoster’s drafting price. Then for curiosity’s sake, I converted those implied percentage numbers into decimal odds. The next thing I did was add a column of each player’s odds of winning the tournament and then I converted that into a percentage number also. Now I can compare apples to apples using their percentage chances.

With this information, I can eyeball and compare the odds numbers and the percentage numbers (which are the same value, but just displayed in different formats). I can also rank and sort the data in various ways using excel, so I subtracted the implied market percentage chance from the implied price percentage chance to uncover the difference between the two numbers.

By subtracting the two prices (the percentage chance implied by drafting price with the percentage chance implied in the player’s betting odds) I can notice if the price for a player available to draft is relatively lower on CoinRoster than is implied by their market odds. If the player is cheap and represents good value to draft their price on CoinRoster will be lower than implied by their betting odds. This means the player is cheap to draft, but if a player’s market odds are lower than their relative drafting price on CoinRoster, the player is expensive.

The table below shows the numbers for the BMW Championship. The table is ranked best to worst value.  Dustin Johnson has the best value for this tournament according to this formula. His odds were 9.36 (which implies a more than 10% chance he will win the tournament, and thereby have the best score to par) but his CoinRoster price was relatively cheap (even though he is the second highest priced player). Justin Rose, Rory McIlroy, and Hideki Matsuyama are also some of the most relatively best priced players.

Tiger Woods also has the third highest relative value to draft. This makes sense since Tiger’s world golf ranking (which the CoinRoster drafting price is based on) is relatively low compared to his chances of winning the tournament. So intuitively, this affirms my belief that I’m on the right track.

Some of the most expensive players on CoinRoster are Tyrrell Hatton, Alex Noren, Brian Harman, Kevin Kisner, and Peter Uihlein.

CoinRoster Price Implied % Implied Odds Market Odds Market % Diff % Cost
Dustin Johnson USA $2,839 0.0364 27 9.36 0.1068 -0.0705 $9,410
Justin Rose ENG $2,366 0.0303 33 15.70 0.0637 -0.0334 $8,368
Tiger Woods USA $979 0.0125 80 24.00 0.0417 -0.0291 $8,060
Rory McIlroy NIR $1,854 0.0238 42 19.00 0.0526 -0.0289 $9,769
Hideki Matsuyama JPN $1,372 0.0176 57 22.00 0.0455 -0.0279 $10,915
Bryson DeChambeau USA $1,797 0.0230 43 20.00 0.0500 -0.0270 $10,995
Jordan Spieth USA $2,058 0.0264 38 19.00 0.0526 -0.0263 $10,794
Brooks Koepka USA $2,688 0.0344 29 18.10 0.0552 -0.0208 $9,548
Justin Thomas USA $3,000 0.0384 26 17.60 0.0568 -0.0184 $7,905
Tony Finau USA $1,452 0.0186 54 32.00 0.0313 -0.0126 $5,840
Jason Day AUS $1,596 0.0204 49 32.00 0.0313 -0.0108 $5,068
Adam Scott AUS $812 0.0104 96 48.00 0.0208 -0.0104 $5,377
Patrick Cantlay USA $1,045 0.0134 75 48.00 0.0208 -0.0074 $5,254
Cameron Smith AUS $935 0.0120 83 57.00 0.0175 -0.0056 $5,010
Brandt Snedeker USA $680 0.0087 115 76.00 0.0132 -0.0044 $6,305
Rickie Fowler USA $1,905 0.0244 41 36.00 0.0278 -0.0034 $7,128
Emiliano Grillo ARG $689 0.0088 113 86.00 0.0116 -0.0028 $6,426
C.T. Pan TPE $801 0.0103 97 86.00 0.0116 -0.0014 $6,418
Jon Rahm ESP $2,230 0.0286 35 34.00 0.0294 -0.0008 $6,776
Bubba Watson USA $1,503 0.0193 52 52.00 0.0192 0.0000 $5,441
Phil Mickelson USA $1,203 0.0154 65 67.00 0.0149 0.0005 $5,889
Billy Horschel USA $681 0.0087 115 124.00 0.0081 0.0007 $5,417
Henrik Stenson SWE $1,159 0.0148 67 71.00 0.0141 0.0008 $4,963
Gary Woodland USA $895 0.0115 87 95.00 0.0105 0.0009 $4,210
Tommy Fleetwood ENG $1,951 0.0250 40 42.00 0.0238 0.0012 $3,880
Aaron Wise USA $731 0.0094 107 124.00 0.0081 0.0013 $2,691
Scott Piercy USA $227 0.0029 344 722.00 0.0014 0.0015 $2,810
Chris Kirk USA $406 0.0052 192 276.00 0.0036 0.0016 $3,978
Beau Hossler USA $565 0.0072 138 181.00 0.0055 0.0017 $4,269
Zach Johnson USA $762 0.0098 102 133.00 0.0075 0.0022 $5,207
Louis Oosthuizen RSA $850 0.0109 92 124.00 0.0081 0.0028 $4,835
Marc Leishman AUS $1,395 0.0179 56 67.00 0.0149 0.0029 $4,387
Abraham Ancer MEX $697 0.0089 112 171.00 0.0058 0.0031 $3,448
Webb Simpson USA $1,503 0.0193 52 62.00 0.0161 0.0031 $3,436
Ryan Palmer USA $390 0.0050 200 637.00 0.0016 0.0034 $2,399
J.J. Spaun USA $402 0.0051 194 589.00 0.0017 0.0035 $2,496
Jason Kokrak USA $456 0.0058 171 428.00 0.0023 0.0035 $3,531
Keegan Bradley USA $685 0.0088 114 200.00 0.0050 0.0038 $3,544
Brian Gay USA $466 0.0060 168 532.00 0.0019 0.0041 $4,034
Austin Cook USA $487 0.0062 160 475.00 0.0021 0.0041 $4,078
Paul Casey ENG $1,437 0.0184 54 71.00 0.0141 0.0043 $4,322
Ryan Armour USA $469 0.0060 166 646.00 0.0015 0.0045 $3,725
Rafa Cabrera Bello ESP $1,175 0.0151 66 95.00 0.0105 0.0045 $3,863
Andrew Putnam USA $510 0.0065 153 504.00 0.0020 0.0045 $3,466
Adam Hadwin CAN $731 0.0094 107 209.00 0.0048 0.0046 $3,715
Byeong Hun An KOR $840 0.0108 93 162.00 0.0062 0.0046 $5,258
Charles Howell III USA $607 0.0078 129 323.00 0.0031 0.0047 $4,986
Luke List USA $778 0.0100 100 190.00 0.0053 0.0047 $4,898
Si Woo Kim KOR $759 0.0097 103 209.00 0.0048 0.0049 $4,671
Francesco Molinari ITA $2,274 0.0291 34 42.00 0.0238 0.0053 $4,537
Andrew Landry USA $568 0.0073 137 551.00 0.0018 0.0055 $2,823
Jr. Potter USA $519 0.0066 150 893.00 0.0011 0.0055 $3,463
Brendan Steele USA $551 0.0071 142 675.00 0.0015 0.0056 $3,593
Keith Mitchell USA $625 0.0080 125 428.00 0.0023 0.0057 $3,691
Patton Kizzire USA $560 0.0072 139 808.00 0.0012 0.0059 $4,175
Kyle Stanley USA $1,208 0.0155 65 105.00 0.0095 0.0060 $4,514
Chesson Hadley USA $649 0.0083 120 428.00 0.0023 0.0060 $4,047
Brice Garnett USA $649 0.0083 120 561.00 0.0018 0.0065 $5,113
Ian Poulter ENG $1,109 0.0142 70 133.00 0.0075 0.0067 $5,284
Kevin Na USA $899 0.0115 87 228.00 0.0044 0.0071 $5,017
Chez Reavie USA $741 0.0095 105 475.00 0.0021 0.0074 $5,532
Patrick Reed USA $1,715 0.0220 46 71.00 0.0141 0.0079 $5,928
Pat Perez USA $820 0.0105 95 428.00 0.0023 0.0082 $5,436
Daniel Berger USA $842 0.0108 93 428.00 0.0023 0.0084 $5,661
Xander Schauffele USA $1,414 0.0181 55 114.00 0.0088 0.0093 $6,399
Peter Uihlein USA $1,137 0.0146 69 219.00 0.0046 0.0100 $7,100
Kevin Kisner USA $1,223 0.0157 64 181.00 0.0055 0.0101 $5,963
Brian Harman USA $1,045 0.0134 75 361.00 0.0028 0.0106 $82,801
Alex Noren SWE $1,580 0.0202 49 114.00 0.0088 0.0115 $81,756
Tyrrell Hatton ENG $2,115 0.0271 37 67.00 0.0149 0.0122 $80,176
$78,061 1.0000 Bankroll Investment Update in a cryptocurrency casino where users can invest in the bankroll of the casino. Its a fun investment for crypto enthusiasts who want to “be the house”. I’ve been investing in the bankroll for a few years, and below is a summary of my current holdings with associated rates of return. Investing in casino bankrolls is a high risk potentially high reward proposition, so take the numbers below with a “grain of salt”. At some periods in the past I had been earning more than 40% annualized, but now as crypto markets have matured (and some would say the bubble has burst) rates of returns from bankroll investing has decreased.


Starting Date Starting Value Gain/Loss % Return Total % Return Annualized
Ethereum 2018-01-16 27.51447173 6.01331517 21.86% 33.60%
Monero 2017-01-05 31.92246242 4.26750090 13.37% 7.95%
Current Date 2018-09-10


Convert option price to odds

This post is about converting the price of an option to an odds format. The same methods also apply if you want to convert stock option prices to an odds format, or any other option price into any odds format including decimal odds, fractional odds, and moneyline (american) odds. A fun application is also found below (including some free bitcoins for you).

For this example, I’ll use a bitcoin option price from Deribit and convert that option price into decimal odds.

The first thing is to choose an option on Deribit to use for our example. At the time of writing, I’m picking the September 28th, 2018, $8500 calls currently trading at 0.008 ($51.25) with an implied volatility of 95% and the underlying trading trading at $6243. This means we will use an out of the money call with 18 days and 9 hours till expiration. Its also worth noting that the contracts on Deribit are european cash settled options.

Now that I’ve chosen an option to use, cnxt I’ll is convert the price of my chosen option into a binary price format. Binary options are “all or none” prices quoted between 0 and 1. Binary options are associated with many over the counter unregulated “gambling” type sites (that are usually a rip off) but its best to forget about binary trading sites and think about binary option prices for what they are; just another price format.

Converting the price of an option on Deribit to a binary number means plugging in the option’s details into a Black-Scholes model, I do this on excel, and here is a link to my spreadsheet.

I plug my chosen option’s time till expiration expressed as a fraction of the year. This changes 18 days and 9 hours to 19.375 days / 365 days = 0.0530821917808219 years. My risk free rate is 1.35%. The implied volatility of this option is 95% and there are no dividends/interest/cashflow associated with it. The underlying price is $6243 and the strike price is $8500.

Drumroll please… after plugging in the variables, the excel spreadsheet calculates the price of this binary call option as 0.064 or 6.24/100. This tells us a few things. We know this call option is out of the money, and we know the implied volatility of this option is high, so it makes sense that this option will have a low chance of being called. So its price of 0.054 makes sense. Based on the option’s binary price, we can infer that this option has maybe a 6.4% chance of being called in the money.

The toughest part of this method is calculating the binary option price (which we just did), the easy part is converting this binary price into an odds format we prefer to use. I like using decimal odds, so next I divide 1 by the binary option price. So a binary option of 0.064 = 1/0.064 = 15.46 decimal odds. A binary option of 0.064 can also be expressed in decimal odds format as 15.46.

If we were to post a betting market on whether the price of bitcoin will be higher than $8500 in 18 days and 9 hours, we might offer decimal odds of 15. For every dollar wagered on whether the price of bitcoin will be higher than $8500 in 19 days 9 hours, we might be willing to pay 15 back if so.

For fun, I created a fixed odds bet at CoinRoster expressing the option quoted above in decimal odds for readers of this blog to bet on. Click here to view these odds at CoinRoster. You can also get 0.00007 bitcoins for free when you sign-up for CoinRoster using promo code parimutuelfreeplay1. Good luck!