# Can I replicate put option by trading futures?

Very basic question. Imagine I have some BTC (which is a bubble but I can't get rid of), and some money on an account which allows me to hedge with CME BTC futures.

The problem is that if bitcoin shoots for the stars, my short position at CME will be closed by margin calls and I'll lose my hedge.

The simplest strategy I have in mind, is to short after certain price (say, 8000) and switch to neutral position on CME if p > 8000 + commission. Is this feasible or do I miss something here?

What can happen to you is that $P$ will go above \$8,000, then back below, then back above, many times. Each time it goes above, you close your short at some price$\$8,000 + X$. When you reopen, you will open a new short at $\$8,000 - Y$, so you will have losses$X+Y$and they get expensive very fast. If you reduce your "bands" for$X$and$Y$, then you find yourself taking smaller losses, but doing so more frequently. Note that your scheme bears strong similarities to the process of hedging a short options position. For market makers in the futures options markets, it is possible to sell an option and keep$X$and$Y\$ quite small, realizing a profit (this hedging or replication is a key idea behind Black-Scholes). But that relies on maintaining an entire portfolio of options positions, in order to spread out those hedging costs on lots of contracts.