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A market maker on Kalshi using Black-Scholes binary pricing on a short-dated BTC contract.

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Full Code

"""Market maker on Kalshi (paper mode)."""

import math
import horizon as hz
from horizon.context import FeedData


def fair_value(ctx: hz.Context) -> float:
    btc_price = ctx.feeds.get("btc", FeedData()).price or 100_000
    strike = 100_000
    vol = 0.6
    tte = 1 / 365  # 1 day to expiry
    if tte <= 0:
        return 1.0 if btc_price >= strike else 0.0
    d2 = (math.log(btc_price / strike) - 0.5 * vol**2 * tte) / (vol * math.sqrt(tte))
    return 0.5 * (1 + math.erf(d2 / math.sqrt(2)))


def quoter(ctx: hz.Context, fair: float) -> list[hz.Quote]:
    spread = 0.04
    return hz.quotes(fair, spread, size=10)


if __name__ == "__main__":
    hz.run(
        name="kalshi_mm",
        exchange=hz.Kalshi(api_key="demo_key"),
        markets=["KXBTC-25FEB16"],
        feeds={"btc": hz.BinanceWS("btcusdt")},
        pipeline=[fair_value, quoter],
        risk=hz.Risk(max_position=50),
        interval=1.0,
        mode="paper",
    )

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How It Works

  1. Fair value uses the Black-Scholes binary formula with:
  • Strike: $100,000
  • Volatility: 60% annualized
  • Time to expiry: 1 day (short-dated)
  • Underlying: BTC price from Binance WebSocket feed
  1. Quoter places a fixed 4-cent spread around the fair value with size 10
  2. Risk is capped at 50 contracts per market

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Short-Dated vs Long-Dated

For a 1-day contract, the binary option is highly sensitive to the underlying price:
  • BTC at 99,000→fairvalue≈0.25(unlikelytohit99,000 → fair value ≈ 0.25 (unlikely to hit 100k in 1 day)
  • BTC at $100,000 → fair value ≈ 0.50 (coin flip)
  • BTC at $101,000 → fair value ≈ 0.75 (likely already above)
For longer-dated contracts, increase tte: 
tte = 30 / 365  # 30 days → more moderate pricing

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Run It

# Paper mode
python examples/kalshi_mm.py

# Live on Kalshi demo
python -m horizon run examples/kalshi_mm.py --mode=live
Use Kalshi’s demo environment for testing: set api_url="https://demo-api.kalshi.co/trade-api/v2" or KALSHI_API_URL env var.