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Gate.io CBBC’s Extension Rules (Trial Run)

2021-01-21 21:58:49Read:12833 Tags:

Gate.io’s callable bull/bear contract (CBBC) has proven to be popular among investors. After listening to user feedback it was established that most users intended to use our CBBC as a medium and long term investment. Taking this into consideration, we have decided to introduce an extension mechanism. This is how it will work:

1 day before expiration, if the percentage range between the CBBC’s underlying spot price and call price is above 10%, the CBBC’s expiration date will be extended by 1 month, automatically. After the extension, the strike price and call price will be adjusted accordingly, in line with the current CBBC price and new funding fees.

Formula:
For a callable bull contract:
Strike price of a Callable Bull contract after the extension= Strike price of a Callable Bull Contract before the extension /(1- annualized funding fee X extension period )

Call price of a Callable Bull contract after the extension= Strike price of a Callable Bull Contract before the extension /(1- annualized funding fee X extension period )

For a callable bear contract:

Strike price of a Callable Bear contract after the extension= Strike price of a Callable Bear Contract before the extension /(1- annualized funding fee X extension period )

Call price of a Callable Bear contract after the extension= Strike price of a Callable Bear Contract before the extension /(1- annualized funding fee X extension period )

Example:
Assume a callable BTC bull contract with strike price of $20000, call price of $20100, annualized financing fee 7.3%. If 1 day prior to the expiry, the callable BTC bull contract is extendable, then the callable btc contract will be extended by 1 month.
After this extension, the callable BTC contract will have a new strike price and call price as below:

New strike price: 20000/(1 – 0.073*1/12)=20122
New call price: 20100/(1 – 0.073*1/12)=20223

Assume a callable BTC bear contract with strike price of $ 40000, call price of $39800, annualized financing fee 7.3%. If 1 day prior to the expiry, the callable BTC bear contract is extendable, then the callable btc contract will be extended by 1 month.
After this extension, the callable BTC bear contract will have a new strike price, call price as below:
New strike price: 40000*(1 - 0.073*1/12)=39756
New call price: 39800*(1 – 0.073*1/12)=39557

Please note,
1. The extended callable bull/bear contract, will use the same symbol but with a suffix (E) to indicate the extension. If users don’t want to have an extension, they can sell on or before the expiration date.
2. If a callable bull /bear contract does not satisfy the criteria for an extension, it will not be extended.

Risk Warning:
After extension, the callable contract bull/bear contract’s strike price and call price will change. Please pay attention to the risks with the new prices. If you don’t want to extend the CBBC , please sell your CBBC holdings in the market before extension.
A callable Bull/Bear Contract has a call level and a mandatory call feature, investors should use their own discretion when trading , especially when the underlying price is close to the call level.


About Callable Bull/Bear Contract (CBBC)
The CBBC has two types of contracts, a callable bull contract, and a callable bear contract. If an investor anticipates an upward movement of the underlying asset, he/she can purchase a callable bull contract; if an investor anticipates a downward movement of the underlying asset, he/she can purchase a callable bear contract. Without considering other factors, if the underlying asset’s price rises, the bull contract will generally rise in value while the bear contract decrease in value; if the underlying asset’s price decreases, the bear contract will generally rise in value while the bull contract decrease in value. The strike price, call level and expiry date are fixed upon the issuing of a CBBC. When the underlying asset’s spot price hits the call level, the CBBC will be called and trading will be terminated immediately.

The CBBC is essentially a special kind of option. For a callable bull contract, the intrinsic value is the underlying asset’s spot price minus the strike price; for a callable bear contract, the intrinsic value is the strike price minus underlying asset’s spot price. At Gate.io, the CBBC expiration date uses Hong Kong Time. When a CBBC expires, it will be settled. The settlement is the difference between underlying asset price and the strike price, divided by the entitlement. The maximum loss is limited to the investor’s entire investment capital.


The characteristics of the CBBC:
1) Easy to trade. You can simply buy and sell a CBBC like you are buying or selling an asset in the spot market.
2) Highly leveraged: The CBBC leverage can be as high as 100x or 200X, in certain cases.
3) Lower trading fee: The CBBC trading fee is lower compared to a perpetual contract as it is charged based on the investment capital, irrespective of the leverage.
4) Callback: The CBBC can be called back. When it is called, the investor only receives a residual value if there is any. To calculate the residual value, the lowest price observed during an observation period for a bull contract, or the highest price observed for a bear contract, instead of the call level, is used.


The CBBC VS Leveraged ETF
1) The CBBC, in general, has higher leverage;
2) The CBBC does not incur any management fee.
3) The CBBC doesn’t have a re-balancing mechanism, therefore would not incur frictions caused by rebalancing. But the CBBC has a callback mechanism. Once it is called, the investor may lose a significant part, even all of his/her investment capital.


Please note: the CBBC’s leverage may change all the time as the market price of the underlying asset changes. The CBBC will be called, and the investor may lose a significant part, even all of his/her investment capital. Please beware of the risks involved.

Learn more about Gate.io's CBBC :

Introduction:https://www.gate.io/en/help/trade/cbbc/18349
Terms: https://www.gate.io/en/help/trade/cbbc/18283
wiki: https://www.gate.io/en/article/18525

Gate.io is an established exchange that holds integrity, transparency, and fairness to a very high standard. We charge zero listing fees and only choose quality and promising projects. Our exchange consists only of 100% real trading volume. Thanks to everyone who has joined us in our journey. We always intend to improve and innovate to reward our users for their continuous support.


Gate.io Team
January 22, 2021

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