Happy new year

Callback spread is a hedged bullish volatility bet.

We have expressed it by shorting 1 call option at 108500 strike and then buying 2 call options at 109000 strike, both expiring on the same date.

This one was easy: 3 unanswered goals have already been scored before we even noticed. But for educational purpose, here's how a green book looks like:

"Lay the Draw" strategy.

Unlike traditional bookmakers, betting exchanges allow us to lay any outcome (to short it in trading terms), this gives us an ability to short the draw, that is, to effectively bet that *someone* will win.

Our model has successfully predicted tonight's flash-crash a few minutes to seconds before it started.

Arrows depict the moment where prediction happened, "0" means price down and "2" means up, "zero_res" and "two_res" is how much a price moved in anticipated direction since prediction happened.

Reality check!

At this point it's pretty safe to say that the most profitable outcome has played out. In a few hours we will earn $727 on Bybit (Theta + Unrealized P&L) and lose $600 on Polymarket, and thus will realize a net profit of $127.

Now, by doing so we got an up to +$700 reserve to cover our possible -$300 Bybit loss, by buying contracts at Polymarket, and as can be seen it costs us only $600 at Polymarket to get $900 return if price at expiry is below $98k.

A well known instrument for that is a so called "Bull Call Spread" (www.investopedia.com/terms/b/bull...), in our case we have chosen BTC-6DEC24-98000-C @ $730 as long-call leg and BTC-6DEC24-99000-C @ $460 as short-call leg.

Let's explore an inefficiency between Polymarket prediction platform and Bybit options exchange, and how it enables an arbitrage opportunity.