If the difference between the underlying asset's price and the call price is greater than 10% on the day before maturity date, the CBBC will be automatically extended for one more month. After the extension, the strike price and call price will be adjusted according to the financial expenses to maintain the current price.
Formulas for calculating the strike price and call price:
Strike price of a bull contract after extension = strike price before extension/(1-annualized financial rate*length of extension) Call price of a bull contract after extension = call price before extension/(1-annualized financial rate* length of extension) Strike price of a bear contract after extension = strike price before extension/(1-annualized financial rate*length of extension) Call price of a bear contract after extension = call price before extension/(1-annualized financial rate*length of extension)
Example:
A callable BTC bull contract's strike price is 20,000, call price is 20,100 and annualized financial rate is 7.3%. This contract gets automatically extended for another month on the day before its maturity date. Now the strike price of this bull contract becomes 20000/(1 - 0.073*1/12)=20122, and the call price becomes 20100/(1 - 0.073*1/12)=20223.
A callable BTC bear contract's strike price is 40,000, call price is 39,800 and annualized financial rate is 7.3%. This contract gets automatically extended for another month on the day before its maturity date. Now the strike price of this bear contract becomes 40000*(1 - 0.073*1/12)=39756, and the call price becomes 39800*(1 - 0.073*1/12)=39557.
Extended contracts will have "(E)" added at the end of their names. If you do not want to extend the contract, you can always sell the contract before or on its maturity date. Callable bull/bear contracts that do not meet the criterion for contract extension are settled upon maturity.
Please be warned:
Holding the positions after the CBBC gets extended can lead to CBBC getting called if the market price reaches the call price due to unpredictable market fluctuations. Please sell your holdings beforehand if you do not wish to hold extended CBBC.
