Bitcoin Options Contracts - Gauging Interest

[IamRichard]

Hello,

After much thought and talking to people. I realized there is somewhat demand for bitcoin relation options.

I have spent 2-3 weeks developing a formula for pricing the options though there is a few anomalies that I have to account for.

Technical Part: Generally its the black-scholes formula but with many variables taken into account and some financial modeling. I have made certain assumptions along with interpreting a "risk free rate." I had some trouble with the curve of the options price because bitcoin is such a unique asset, I had to make some assumptions that otherwise would not be used in real life (difficulty, expected growth etc).

What I have come up with is way to price options up to 3 months. Beyond 3 months you run into more difficulty as I feel that my model cannot accurately gauge prices. Also, the far "out of the money" options will be priced higher due to an increase in expected/implied volatility.

Gauging interest: I am here to gauge interest if anyone is interested in buying contracts.
I will start small with 10 BTC max per direction (contract size, 1 contract = 1 btc, so 10 max either put or call) per person and will have a certain ratio of Calls to Puts so that in case of extreme swing, I will be able payout. I believe I have sufficient capital to payout to take on 100 - 200 BTC in options.
You can use this service to either speculate or hedge your other ventures/investments etc

Offering: Current BTC/USD price = 11.5
I am only offering November, December, January 2013 contracts of the 9,10,11,12,13 for both calls and puts. American style (redeem whenever)
If you want to build a synthetic, we will have to discuss.
Shorting contracts will not be an option initially.

Example:
You want a contract for the max (10BTC) Call for Jan 2013 with a strike of $13. I quote you the price of $3 BTC per contract. You send BTC to me, and I will note you in my books as an owner. You may sell this contract to other people (but must let me know) or you can sell it back to me for an agreed price.  
You can also exercise that option whenever you want. And I will either send you BTC for calls or buy BTC from you in the form of puts.

Tl;Dr: Gauging interest on options contracts. 10 BTC max per person.

Post below if interested, if I receive enough interest, I will go ahead and launch.

-Richard

Edit: introduction guide to options http://www.investopedia.com/university/options/option.asp#axzz29QCsDKNF

[1714106500]

1714106500

[MPOE-PR]

Hi YouAreRichard.
Options trading exists since about August 2011. Also, you need to join IRC so you don't need to confront the ridicule of offering to launch new products that are some of the oldest things in BTC.

[IamRichard]

Hi YouAreRichard.
Options trading exists since about August 2011. Also, you need to join IRC so you don't need to confront the ridicule of offering to launch new products that are some of the oldest things in BTC.

Oh I see, I didn't know. Who/what offers such service?

[jgarzik]

Options contracts have long been discussed, and a few sites do offer them.

It would be great to introduce some standardization and competition to the market.

MPOE-PR runs a market, but also trolls heavily all over this forum, so his answers are highly biased.

[rini17]

The thing MPOE-PR is talking about in her "charming" style is MPEx. It allows to create your own options, too. If you want to only try it without paying for MPEx account, you may consider CoinBr brokerage. But CoinBr so far only supports buying, selling and exercising options.

[jgarzik]

ICBit also supports futures.

[IamRichard]

I don't know. Both look really sketch and shady.
And I assume the options contracts are priced by supply and demand.

Theres so many problems with that lol. Anyways, gonna leave this here for discussion next few days and see where it goes.

[jgarzik]

I don't know. Both look really sketch and shady.
And I assume the options contracts are priced by supply and demand.

Theres so many problems with that lol. Anyways, gonna leave this here for discussion next few days and see where it goes.

For the record, I use neither of them...  Just noting the reason why we need competition! 

[IamRichard]

I don't know. Both look really sketch and shady.
And I assume the options contracts are priced by supply and demand.

Theres so many problems with that lol. Anyways, gonna leave this here for discussion next few days and see where it goes.

For the record, I use neither of them...  Just noting the reason why we need competition! 

Ah ok, yeah I carefully reviewed their stuff and if anyone invests money, lol consider it a donation.

I guess I can put up a website soon. But it seems I'm not really gathering any interest

[jgarzik]

I don't know. Both look really sketch and shady.
And I assume the options contracts are priced by supply and demand.

Theres so many problems with that lol. Anyways, gonna leave this here for discussion next few days and see where it goes.

For the record, I use neither of them...  Just noting the reason why we need competition! 

Ah ok, yeah I carefully reviewed their stuff and if anyone invests money, lol consider it a donation.

I guess I can put up a website soon. But it seems I'm not really gathering any interest

It is difficult on the forums, as there are not too many people familiar with options on the forums, I think.  But there is definitely interest in general from the trading and hedge fund community, so I would think there is interest.  Enough interest to sustain a business employing a few people?  Unsure...

[IamRichard]

I don't know. Both look really sketch and shady.
And I assume the options contracts are priced by supply and demand.

Theres so many problems with that lol. Anyways, gonna leave this here for discussion next few days and see where it goes.

For the record, I use neither of them...  Just noting the reason why we need competition! 

Ah ok, yeah I carefully reviewed their stuff and if anyone invests money, lol consider it a donation.

I guess I can put up a website soon. But it seems I'm not really gathering any interest

It is difficult on the forums, as there are not too many people familiar with options on the forums, I think.  But there is definitely interest in general from the trading and hedge fund community, so I would think there is interest.  Enough interest to sustain a business employing a few people?  Unsure...

hmmm i see, ill have to look into it I guess

[rini17]

If you feel like pioneer, you may want to try offering your option contracts on OpenTransactions network. There are some plans to write user-friendly OTs client and the options can be something to use the client for.

[ChrisKoss]

If you can build a trusted, secure, easy-to-use website that allows option trading with good liquidity, I think you'll get a lot of business.  Check you local laws though - there's a good chance its not legal to in your jurisdiction.

I think the reason your thread is receiving so little attention is that many others have tried, and none (IMHO) have reached the trust or volume necessary to pass the tipping point to success.   ICBIT has a confusing interface, and low liquidity (i think?  the interface is confusing...). MPEx is run by a troll (low trust) and is even harder to use than ICBIT.

Also, I'd advise caution using black-scholes for Bitcoin option pricing: I think this market is particularly prone to black-swan events.

[MPOE-PR]

For the record, I use neither of them...  Just noting the reason why we need competition! 

Have you used MPEx, then?

[IamRichard]

If you can build a trusted, secure, easy-to-use website that allows option trading with good liquidity, I think you'll get a lot of business.  Check you local laws though - there's a good chance its not legal to in your jurisdiction.

I think the reason your thread is receiving so little attention is that many others have tried, and none (IMHO) have reached the trust or volume necessary to pass the tipping point to success.   ICBIT has a confusing interface, and low liquidity (i think?  the interface is confusing...). MPEx is run by a troll (low trust) and is even harder to use than ICBIT.

Also, I'd advise caution using black-scholes for Bitcoin option pricing: I think this market is particularly prone to black-swan events.

Hmmm well liquidity initially would be provided by me. The problem with the existing ones is that its up the people to provide liquidity. I assume all but a a handful of people can even remotely calculate bitcoin related options prices.

As for the black-scholes, I have accounted for the black-swan events hence why it has taken me so long to produce a viable model. Though, I am not sure if users would be comfortable with the premiums to pay on BTC.

For example, I would offer $13 strike Call for Nov 23rd expiration for 1.95

[rini17]

For example, I would offer $13 strike Call for Nov 23rd expiration for 1.95

You mean 1.95 BTC? This looks to me as the same thing as O.BTCUSD.C130N on MPOE/MPEx that sells only at 0.25757542 atm. And MPOE consistently reports profit so their market making seems sound.

[IamRichard]

For example, I would offer $13 strike Call for Nov 23rd expiration for 1.95

You mean 1.95 BTC? This looks to me as the same thing as O.BTCUSD.C130N on MPOE/MPEx that sells only at 0.25757542 atm. And MPOE consistently reports profit so their market making seems sound.

No its in dollar amount. And would MPOE honor such a commitment if say BTC went to say 30usd/btc? lol

And the price on MPOE is nearly $3usd while I'm offering it for 1.95

[rini17]

For example, I would offer $13 strike Call for Nov 23rd expiration for 1.95

You mean 1.95 BTC? This looks to me as the same thing as O.BTCUSD.C130N on MPOE/MPEx that sells only at 0.25757542 atm. And MPOE consistently reports profit so their market making seems sound.

No its in dollar amount. And would MPOE honor such a commitment if say BTC went to say 30usd/btc? lol

And the price on MPOE is nearly $3usd while I'm offering it for 1.95

OK, I stand corrected. And if you prefer lulz over doing some research how exactly MPOE is financed, then sorry, I'll rather leave any further discussion to MPOE-PR .

[jasinlee]

For example, I would offer $13 strike Call for Nov 23rd expiration for 1.95

You mean 1.95 BTC? This looks to me as the same thing as O.BTCUSD.C130N on MPOE/MPEx that sells only at 0.25757542 atm. And MPOE consistently reports profit so their market making seems sound.

No its in dollar amount. And would MPOE honor such a commitment if say BTC went to say 30usd/btc? lol

And the price on MPOE is nearly $3usd while I'm offering it for 1.95

OK, I stand corrected. And if you prefer lulz over doing some research how exactly MPOE is financed, then sorry, I'll rather leave any further discussion to MPOE-PR .

The MPOE sites include un-moderated image board which have a tendency to include CP (child porn) and various other pretty nasty stuff. The community is still waiting for burnside or someone to launch a viable alternative to glbse and crytpostocks looks to be getting there.

[Cryptostocks]

Whats missing to be "there"? 

Cryptostocks.com is offering all you need:
 - Listing projects
 - Ability to pay back your investores via dividends
 - Offline shares
 - Two factor authentication
 - Trade In (coming up within the next two or three days)
 - Multiple chain supported: BTC, LTC, DVC
 - Bonds / Buy backs
 - API
 - etc.