The hidden secret behind Binance Dual Investment

Is it worth investing in?

Disclaimer: The information available in this article and all connected resource is for educational purposes only. Crypto trading engages your capital, and it will never be safe. Only ever invest what you are prepared to lose and do your own research.

Recently, I was researching material for this blog and I had a look at different staking options on binance.com: namely Binance Earn. While most of them are pretty basic liquidity providers and fixed/flexible deposit options, I did stumble into the “high yield” category, which redirected me to completely different financial products under the name “Binance Dual Investment”.

And believe me, there is a lot to say about those. Let’s get started.

What is Binance dual investment

First thing about Binance Dual Investment “earn” method is that… It should not be in “earn” at all. This is not only wrong, but also dangerously misleading. While Binance is fairly clear about the fact that your assets are definitely in danger, the type of financial product you are trading here is very different in nature and in concept from your average stacking investment portfolio.

Dual investment is actually stock-options trading. More specifically short stock option selling, or short-put. Let’s see how they work :

For the sake of simplicity, we will focus today on the different BTC/USDT options provided by Binance. This will apply with many other pairs and many other platforms.

There are two kinds of dual investment you can make, and both of them have a very, very (intentionally?) misleading name :

• Sell high, where you allow Binance to buy your BTC at a given time in the future, below their value if their price exceeds a certain threshold.
• Buy low, where you allow Binance to force you to buy their BTC at a given time in the future, above their value if it falls below a certain threshold.

While this seems like a loss-loss at first glance, you are being rewarded for taking this specific risk. Each option comes with an APR rate, which you will receive whatever the completion status of the option is at any given date. This is in essence the price for which you are selling the short put. By the way, it looks high, but it’s the yearly rate. You need to multiply it by (# of days : 365).

That was complex. I’m sure an example will make it a lot clearer :

Return overview on Binance Dual Investment — BTC/USDT

In the first example, I Sell high - so I place a short put over BTC/USDT for 1 BTC, the 15 of November (as I write this) for the 18 of November (in 3 days) at a threshold of 17,000 USDT/BTC and an APR of 189.45%. This means that :

• If on November 18, the price of BTC is above 17,000, I'll have to sell my 1 BTC for 17,000 USDT.
• Otherwise, I’ll get to keep my BTC. But its value might be lower than it is right now.
• Whatever happens, I’ll gain interest for three days: 1 BTC * 189.45% * (3 / 365) ≈ 0.0155 BTC.

And in the second example, I Buy low - so I place a short put over BTC/USDT for 1,000 USDT, the 15 of November (as I write this) for the 18 of November (in 3 days) at a threshold of 16,500 USDT/BTC and an APR of 135.44%. This means that :

• If on November 18, the price of BTC is above 16500, I’ll get to keep my USDT.
• Otherwise, I’ll have to buy the equivalent of 1,000 USDT for 16,500 USDT/BTC.
• Whatever happens, I’ll gain interest for three days : 1,000 USDT * 135.44% * (3 / 365) ≈ 11.1 USDT

I hope it is clearer now. One big question subsists thought…

When is it profitable ?

Ready for some math?

The function returning the return expectancy of a short put option is easy to compute. We just need to evaluate the scenarios we just enumerated and input the correct parameters :

And here is the final result :

Those of you who are already familiar with option trading will immediately recognize those very typical short put curves. Here is what we can read :

About the “sell high” option first (red curve) :

• If the final price is above 17,000, we will sell our BTC at this price and essentially cap our profits. We will make around +2% whatever the final price is.
• If the final price is between 16,650 and 17,000, we will keep our BTC. In this range - thanks to the +1.55% APR/3d - we will still make a profit between 0% and 2%.
• If the final price is below 16.650, the APR will not be enough to compensate our loss caused by the drop of BTC.

Now about the “buy low” option selling (blue curve) :

• If the final price is above 16,500, we will keep our USDT. We will get our APR and make around +1.1% whatever the final price is.
• If the final price is between 16,300 and 16,500, we will buy BTC at 16.500. In this range - thanks to the APR - we will still make a profit between 0% and 1.1%.
• If the final price is below 16.300, the APR will not be enough to compensate our loss caused by the drop of BTC.

In short, short put options are interesting when you think that the price will either raise, either stay stable. “Sell high” and “Buy low” are in essence the very same thing, depending on if you wish to purchase them in BTC or in USDT.

In addition to being profitable when the market is stable, short puts come with an embedded take profit and, in Binance’s case, no trading fees. Fantastic right? What’s the catch?

Here’s the catch

In short: big number probabilities. Given enough time, all stock will eventually have very bearish phases and the associated loss will make up for all the small wins.

It might have been obvious watching the curves above, but short puts are extremely dangerous because they are characterised with limited gains and unlimited losses. While your winning expectancy might be very positive thanks to the high APR, you must acknowledge at all time that trading short put lets you take the risk of a strong dip without the expectancy of profiting from a strong raise.

To put this into perspective with recent events, where BTC/USDT did show strong but not exceptional variations.

• If you had put a 3-day short put on November 7 at APR 150%, you would be down 22%.
• If you immediately had put a 1-day short put on November 10 at APR 150%, the market recovered more than 10%, but you would only be up around 0.5%.

In this kind of unstable bearish market, which are quite unpredictable and bound to happen often, short put trading is very clearly at a disadvantage. Please keep in mind that even if the market dips, you cannot opt out before the due date! You have to take the entirety of the dip.

It is a powerful tool if used right that can generate some recurrent revenue, but in absolutely no case a no-brain money-maker on the long run.

Last words

Binance knows what they are doing here. There is little chance that we can design an algorithm that will outsmart their own revenue calculator, and their APR risk/reward computation. The APR is basically an insurance fee they pay you in order to cover their long trading strategies from strong dips, and they know exactly its average cost.

Nonetheless, if you do show interest in this kind of content, I would be happy to research this in an upcoming article on this blog and see if there is some recognisable market phases where Binance Dual Investment is a good trading strategy.

Please let me know, and stay tuned!

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