If you look at, e.g. the best offers at the 420 BTCUSD strike price (this was as-of 4:15 pm EST on November 14, 2013), or at the "How It Works" page for Future Block, it seems like there is a violation of the No Arbitrage Rule.
For example, from the "How It Works" example. Suppose I sell one BTC's worth of "up" contract (I get 1 BTC) at 80% payout (I pay back 1.8 BTC if price is above strike at expiry).
Next, I sell one BTC's worth of "down" contract at the same strike price (I receive another 1 BTC), at 50% payout (I pay back 1.5 BTC if price is below strike at expiry).
If the price is above the strike, the "up" contract clears and I received 2 BTC but pay back 1.8 BTC (netting a gain of 0.2 BTC for me). If the price is below, the "down" contract clears and I receive 2 BTC minus the 1.5 I pay back (netting a gain of 0.5 BTC for me).
Obviously, these example offers may not be close enough to the best offer to attract buyers, but apart from that I can't see any specifications for transaction costs to the seller, fees, etc. Even if there were fees, wouldn't they need to adjust according to the payout rates a seller could command selling on both sides of a strike price?
I think I am probably missing an obvious detail; any help correcting my mistake would be great!
To clarify, the puzzle here is that at about 4:15 yesterday, the best offer for up and down contracts roughly matched the example I give above, using numbers from the "How It Works" page to illustrate a Dutch book offer selling on both sides of the strike price. That this can happen is not a mystery per se, but that the live best offers reflected that it was a viable live strategy even when there was resonable volume in the market is a puzzle. Either there was simply no volume at all on one side of the strike price (which should have immediately led to better offers on that side) or else there was actually not much participation and the volume data was incorrect / misleading, or both. (Assuming that early adopters of BTC options can't be that irrational... after all, they'd have to know a lot about bitcoin and that particular options platform even to participate. So it seems implausible that buyers were so irrational as to be buying at such prices on both sides of a strike price).