Mathematician: Practice Answer 2

The correct option to have taken would have been the third option of 90% in BTC bids and 10% in HXRO. The other two options — although they could lead to massive profits, are incredibly risky to take. Furthermore, there is never a scenario wherein you would want to use more than 10% of your capital on HXRO.

For example, had you aggressively put half of your capital in the HXRO play (never do this) on a total capital of 10,000 USD — if price settled above 21000 then you would have earned a 24.1% post-fee return on 5000 USD which is a profit of 1205 USD. However, if price instead filled your bids and traded far lower than your capital would have a massive 50% loss (-5000 USD).


Now, let’s take that same example above except this time with proper capital positioning. You would use 9,000 USD for bids between the target price range of 20700 and 21000 and 1,000 USD for the HXRO play featured in this example. If price settles above 21000 but your bids do not fill, you would have an extra 241 USD earned from HXRO. If price does settle below 21000 then you would lose the 1000 USD but you would be buying BTC at a far lower price than it was originally in this example.