TIX contracts are a simple way to take a position on whether or not the price of an asset will be ABOVE or BELOW a specified price (the “strike price”) at a distinct point in time (the “expiration”).
Taking a “YES” position on a strike means you believe the index will settle ABOVE/BELOW the strike price at expiration. Buying a “NO” position on a strike means you believe the index will not settle ABOVE/BELOW the strike at expiration.
All TIX contract markets expire to either a price of $1.00 or expire worthless (remember this is the price of the TIX contract, not the price of the underlying index). At any time prior to the contract expiration date, the price of the contract will fluctuate somewhere between $0.00 and $1.00. This price represents the current markets indicative probability of the underlying index settling ABOVE/BELOW the strike at expiration.
On the Hxro UI you will see this indicative value as market “odds”. This means if the current market was trading at $0.25 (or 25% probability), you would receive 4.00x (calculated as 1/0.25) to buy the YES and 1.334x (calculated as 1/0.75) to buy the “NO”.
It is important to note that you may only go long YES or long NO.
How does a TIX contract work?
Assume Rob is super bullish on the price of bitcoin. On December 1st, he looks at the market and sees that the current BTC index price is $16,500, Rob believes that on December 25th, that Bitcoin will expire higher than $20,000. Rob looks at the BTC-TIX CLOSE ABOVE $20,000 by DEC 25, 2020 and sees that its trading at 5x (or a 20% probability). Rob thinks that is a fair price for his risk and trades 100 USDC for 500 WIX contracts.
Once Rob has the position on he has a few options. Rob can:
- HODL until December 25th, if the price of the BTC index settles above $20,000 on that date, his TIX contracts will be worth $1.00 each and he will paid out 500 USDC, or;
- Add to the position if his conviction becomes stronger, or;
- Sell a portion or the entirety of the position at any time prior to expiration.
"There are times when TixWix contracts with low probability of payout do not have a bid in the market to close a position when a quote is requested. The width of the bid/ask market on quotes for these low probability contracts is typically very wide as a percentage of the price paid for the contract. The underlying index will need to move substantially in your favor in order for the contract to gain enough value to close out the contract before expiration. This makes the low probability contracts very difficult to “flip” or sell out quickly for a profit. Therefore, when purchasing contracts with low probability of payout, the odds are very high that you will lose 100% of the entry value."