Okay, it's up.

It's been a long day, but the v2 release is up at https://bitoption.org

Please go ahead and try it out.

Disclaimers; uneven design, could break.

When I say break, it's much more likely to break by doing what you told it to exactly (I accidentally converted a large number of BTC on Mt. Gox testing it earlier today) than it is to do the wrong thing. I don't believe there are significant logic or finance bugs in it.

Per our discussions, BTC denominated, which means non-linear returns; prices are capped at 1 BTC per contract.

I also update strike price rules for USD to be at the $.50 level, I want to make sure we get a market going.

So, go forth and trade!

Per this discussion, Mt. Gox is used for all the holding of BTC (really, we don't even have a wallet), so that may make you feel better or worse, but that's the situation right now.

We will eventually be able to allow you to withdraw USD from Mt. Gox, but that's a little down the road.

I'm off, but available by email over the weekend. There's an urgent contact form up at /help on the site as well.

Yes,

That's where the funds are kept right now.

So, to be clear, you would pay, say .2BTC for the right to sell at say $10/BTC in 4 months.

Someone would take the other side of this, and say "sure, give me your .2, I'll keep my 10*BTC in USD here."

You would be 'bidding' on a put in this case, and you'd be putting some of your BTC at risk in order to hedge down.

The other side would be 'asking' or 'writing' the put and they'd have USD at Mt. Gox locked off in order to do so.


Whenever you wanted to exercise your put, you'd either transfer BTC into our exchange, or buy a little, and exercise,sell, then rinse/repeat.  This would be a 'naked' put if you didn't have any BTC upfront other than the .2 per contract. It would be 'covered' if you had it, but the system doesn't care if you have the BTC to sell right now; that's your responsibility, and it's yours to exercise if the puts come in as worth something.

I've gotten a PM requesting the opposite...

I think for launch purposes right now, I'm going to launch with BTC, and add underlying USD support as an early feature, so you can go both ways.

The market can decide. And there should be some nice arbitrage opportunities for bot writers, so everybody will win, hopefully.

Update, I've put in a filter to make sure no bids / asks are over 1.0

I'll probably put in a little calculator that says "you'll make money once the price gets to x" as a helper at some point.

As an example, a 12.00 call is in the money right now by say $1. Hence to make a little bit right now, and speculate the market will drop, you should price it at least a bit over 1/12 of a BTC.

Actually, not only do we have an API, we have a way for someone building a spread-betting website to make money, as they can add a convenience fee for people who use their spread-betting site and see it show up on their own account.

Bitoption.org supports this right now, and we have an API.

Just looking for orders, it should be up and running with a web interface today? tomorrow?

There are fairly well-known pricing models for this in the hedge fund world; 2%/20%. I'd suggest you post your daily returns on a website, find some way for them to be audited, and let the big bucks roll in.

Oh, and this service is probably illegal to offer in the US, but you may already have known that.

If you're not willing to do that, you'll probably have trouble finding people.

OK,

I've thought about this some more, and am not sure what to do about it. I'd like some input -- should Calls be BTC or USD denominated, that is, what do you pay with for the right to buy BTC for USD in the future?

What's strange about paying BTC is that you have a very non-linear payout curve; so, for example, your guaranteed loss is 100% at 1BTC price; you're paying that whole coin you'll be able to buy later right up front.

Put this way, 4 BTC for a 1 BTC call is obviously a scam.

Puts have this same element to them.

On the other hand, we won't be accepting USD directly, so I don't want to have to make people convert to USD if they don't wish to (although we do have functionality to support this)

What are other's thoughts on this? Simplest would be to limit asks to 1 BTC for calls and puts, and essentially let caveat emptor.

More complex would be redenominating the offers in USD so that you pay USD for the right buy/sell BTC later.
A little more mindbending would be changing the underlying to USD so that you pay BTC for the right to buy/sell USD later. As it is, you pay BTC to buy/sell BTC later. There's nothing mathematically wrong with it, but it may be a little confusing for an already confusing area of finance.



I'd like input before I re-launch the website.

Clearly the fee is way, way too high. Can we all agree on that?

I think if it were .057 BTC, or .57BTC nobody would be complaining. (Let's recall that's roughly $5 US today, a lot!)

I also think it's outrageous that the most recent client enforces this behavior -- let people float their transactions out there and wait longer for confirmation if they want to! That's how the fee was intended to function originally if I recall -- a way to incent miners to take it, and speed up confirmation of the transfer.

There should always be the notion of a 'bulk' transfer, 4th class postage which costs very, very little to nothing.

Update:

That call is not appealing, since it is BTC denominated.

I will be bringing the site down briefly today to re-denominate calls in USD; this is a bug.

Owner of the call; I'll get in touch with you to see what you'd like to do.

I think options are the answer. Hence my options site. A merchant could just price puts at or near the current price in whatever period inventory turnover occurs. This is akin to oil pricing volatility for large airlines, but I'm hoping that someone will write a really simple hook which lets merchants add in a 'hedge' fee to their pricing so they don't have to worry too much about it.

Web interface launching later today.

I anticipate Gox will allow short selling once margin trading is widely opened up.

I am also launching an options trading site (hopefully tomorrow the web interface goes live); you could buy puts from bitcoin bulls, god knows there are plenty of those. Just convince them to come to the site starting tomorrow. I'll post a note here when it's live.

USD is also way up.

I think what the markets need is a quality short mechanism; I'm guessing we're seeing a bunch of bots bid each other up.

I'm just about to widely launch an options trading site; this will help. Short selling would also help quite a lot.

Update: I am SUPER close to having the web interface out the door. Sometime today (GMT).

What's left for an initial humble launch is UI for registering, and hooking up the UI for withdrawing your BTC from the options exchange to the existing API. There are a few niggly backend details to take care of, all told maybe a few more hours of coding, although I have to stop right now for a while.

Also, that call is looking more appealing..

You can pay 4 BTC for guaranteed right to buy at $12  on August 4 at bitoption.org right now: https://bitoption.org/securitiesList

(Just a plug. Web interface coming soon)

I don't have time to answer all of your post here, but you glibly handwave over my very specific concerns to an extent that I hope nobody is relying on you for their personal wealth generation.

We're all learning the dynamics of this system, exploring together, if you will. It makes sense to be cautious when you are discussing considerable time and expense by potentially a whole community.

Since we're discussing 'towncoins', I think you're complaint about being geo-cratic is silly -- the entire discussion is on making a fork that works for a small town.

The fundamental issue is that neither you nor I can properly weigh the impact of the variable changes proposed here. There is only one way to get even a somewhat reasonable read on the actual impact; letting people bid on the value to themselves of those differences.

I stand by my statement that forcing an exchange rate upfront, using a formula on something like this will create significant value and exchange imbalances, almost certainly to the detriment of the towncoin community at many points.

Finally, Satoshi's formula for difficulty is technocratic, in that computers calculate it, but this is a non-sequitur. It is market driven in that the market decides together what the difficulty will be, and it is a clever constraint designed to help fulfill the 'deflationary' aspect of his goals.

I hear that. Keep the questions coming; I'll keep the updates coming. Working on display of quotes and then user system right now.

This is a technocratic solution to a market problem; it will fail.

The market problem is a simple one; towns might want in on using bitcoins, or towncoins. Great!

There won't (and shouldn't) ever be a function-driven exchange rate between the towncoins and bitcoins. Demand will, inevitably, be anything but the function. This will create massive instability / exchange rate problems for your town. Towncoin speculators will ruin your day.

Nobody in your town wants this; they want to use something like Bitcoin (and, maybe, to your point, get 'in' early.)

I would suggest that you work upfront to minimize the interest level people in, say, Russia would have in getting or generating your towncoins, probably geographic restrictions on spending them would be a good start.

I don't think you can solve the 'outside mining pool' problem perfectly, but it's possible you could make it much less appealing if towncoins dont' readily exchange for dollars in large amounts, since they're mostly used around town, and nobody bothered to build an exchange yet, especially for your small town.

So, if someone wants to hire Vladimir, great. It's just that paying him is going to come out of pocket, since you won't be able to make it back on appreciation of towncoin very easily.

I think most people would prefer to keep communication here until the union is well established, and any reputation questions are worked out.

If you wanted those coins at $12, but only wanted to pay $2, you could write a call at that date for 12 strike, and bid $2. Then the bid/ask spread would be $2/$4, and you'd wait until someone agreed, or a new person came in and made a new offer.