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Author Topic: The Starting Of The "Bitcoin Derivative" - What side are you on?  (Read 4802 times)
sgbett
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April 05, 2013, 04:01:50 PM
 #41

I think we all know how options work.

Thats what I thought too.. at first...

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April 06, 2013, 09:38:20 PM
 #42

I think we all know how options work.  Here is how I would use them (once they exist):

Buy a call.  Assuming the price of BTC goes up before the option expires then I will exercise my option and take deliver of my BTC.

If the seller of the call actually had the BTC no problem, they ship me the BTC.

If the call was naked then the seller of the call will be forced to go the maket and buy BTC in order to cover the call.

Wala - a new way to buy BTC!





Exactly - Literally the most convenient way to accept payment if you wind up wanting to exercise your option, is to simply have them send you the bitcoins.  If the price is volatile, what kind of idiot would sell an option naked for any length of time when the price could swing wildly against them, investors who don't want to go broke will buy the bitcoins at what they think is a cheap price, option the bitcoins when they feel the price is overbought and likely to fall to lock in their gains, with the worst case scenario being they sold their bitcoins at what seemed like a high price, but in fact wasn't.

Your upside is big, but your downside is capped.

So the market will stay small because going naked and getting it wrong could be so dramatically expensive.
I think we all know how options work.

Thats what I thought too.. at first...
Right?

Why would someone choose to take settle in cash rather than take delivery when at the very least there are less fees for the transaction.

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April 06, 2013, 10:48:52 PM
 #43

Paper gold is working so well for that market, seems silly not to try and pull the same stunt with paper Bitcoins.

This. They've done it with gold, no reason they can't do it with BTC. Futures markets usually trade magnitudes of amounts more of a commodity than there is in existence, and it doesn't really matter. Also, these futures markets have much better infrastructure than an exchange like Mtgox AND they're allowed to use leverage - all of which make it the number 1 place to be for price speculators. IN the end, the futures markets determine the price of the commodity and not the 'physical' or 'real' market.

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April 06, 2013, 11:56:04 PM
 #44

For those that shrug off wall-st options trading as having no effect on bitcoin, consider the assassination market aspect of it. Obviously Bitcoin has drastic implications for the "powers that be" who derive much of their power via the control of fiat currencies. We know that, while big sells can trigger panic sells, exchange downtime and lag can also contribute. We could argue all day about which has more of an effect but in the end, right now we have Mt. Gox constantly lagging, BTC-e with its spottiness, Vircurex down for the weekend, Bitfloor with a "Some of our users are experiencing problems" message, other exchanges with problems of their own... It's not hard to DDOS these folks when they're being hit with ridiculous volume spikes that for some reason they failed to anticipate. And if you throw a few million or billion of fake fiat into a derivative, all of a sudden it becomes very profitable to fuck with the exchanges, release FUD news reports (if you're in the media business,) etc etc.
Of course none of this will work in the long run - the exchanges will learn to carry 10x normal capacity, the FUD news reports just end up getting more people to buy BTC - in the long run.

Please don't read this the wrong way - I'm obviously not saying that the only effect a wall st. derivatives market would have on bitcoin is via the assassination-market-type mechanism, nor am I saying that it would necessarily be a large or even significant aspect of it, nor am I saying that DDoS is responsible for all of our exchange troubles (it's not). Folks have this weird way of inferring the suggestion of one-to-one-causations for everything.

by the way, "Al" is just some pimply faced kid in his mom's basement who sold his only 3 coins at $94 and owes his pot dealer $500; desperate times call for desperate measures...  Grin Grin Grin
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April 07, 2013, 01:01:57 AM
Last edit: April 07, 2013, 01:12:12 AM by Jobe7
 #45

With commodities you have a paper trail that can be manipulated, counterfeited, and estimated with rehypothecations of assets. Traditional derivative bets cannot be made with Bitcoin because you will be forced to prove ownership by signing your addresses. Good luck loaning bitcoins you don't have. Someday you may even be required to use triple-entry accounting. Better enjoy the wine while you can.

What he said, and the OP has a few facts about Bitcoin wrong, a few important facts. But hey ho, let the Wall Street criminals try, I look forward to it and giggle with my popcorn in anticipation Cheesy

"Hey, wall street, i'll sell you 1 btc for £1 billion then you can play your silly paper games with that. Oh, you'll just pretend you have btc as you sell it to each other? Hahahaha, I have some monopoly money you can use." Cheesy

When you're finished playing your games with your non-existant and useless paper, that you CAN'T send to anyone, we'll be laughing, and still  laughing Smiley

Maths > wall street stupidity/corruption

edit: Let me put it this way, when anyone with a wall street paper btc tries promising the toilet paper to anyone, sure! If another wall street wa.. I mean banker sells it to another wall street wanker, sure, be happy, go ahead Smiley Your imaginary paper will make the masses think that bitcoin is worth hell of a lot more of whatever its value will be at the time.

This will make masses of people, and people with lots of money, buy REAL bitcoins, increasing the real value (which is mathematically created as a weighted average and can not be increased by 'imaginary' paper money).

The paper btc will only carry value for the fools that accept it. And when they come face to face with someone who says "soo... send me the btc." They'll fall flat on their face, and suddenly they'll realise that their paper btc can't in fact imitate hard maths, and suddenly they'll realise how worthless their toilet paper is, and suddenly bOOm, sell sell sell, their silly toilet paper money disappears (whilst the real value of btc stays steady), and the wall street fools that brought into it are brought low. Whilst the real btc owners are giggling and eating their popcorn.

So, yes, create paper btc Smiley increase attention and value to real btc and draw the masses to us Smiley then watch as your toilet paper is extinguished as the 1st person refuses your paper money for real btc (and considering the peoples trust in the banks, that won't take long).

Satoshi already thought of this.
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April 07, 2013, 01:11:27 AM
 #46

I'm not a trader, but i've been around a lot of them. I write software. This is my uninformed opinion:

Those personas like "al" are a dime a dozen. They are everywhere, and all over themselves with joy thinking this is the next big thing they're going to manipulate. They're never that smart, they tend to have 1 or 2 plays, and rinse and repeat based on the complete anarchy in the markets. They're cocky and tend to burn out badly, 'hyper-lame-and-sad-to-watch-your-jokes-are-tired-and-boring-nobody-cares' kind of thing.

It's likely right now (for the next few years) they'll be able to manipulate the BTC market fairly easily (or at least their bosses will)

But.. If this becomes a useful currency that people trade for goods and services, IMHO none of that will matter. The value will stabilise through billions of people's livelihoods and businesses.

The ONLY reason they had so much leverage in the past (till now) is because of the fiat and fractional reserve system, corrupt politics, and a broken economy allowing them to leverage themselves to the hilt.

They can try to 'fake' that, but it will never be the same for them if we drop the existing 'framework' and go back to a form of 'gold standard': 'crypto standard'

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April 07, 2013, 02:29:33 AM
 #47

I think we all know how options work.  Here is how I would use them (once they exist):

Buy a call.  Assuming the price of BTC goes up before the option expires then I will exercise my option and take deliver of my BTC.

If the seller of the call actually had the BTC no problem, they ship me the BTC.

If the call was naked then the seller of the call will be forced to go the maket and buy BTC in order to cover the call.

Wala - a new way to buy BTC!





Exactly - Literally the most convenient way to accept payment if you wind up wanting to exercise your option, is to simply have them send you the bitcoins.  If the price is volatile, what kind of idiot would sell an option naked for any length of time when the price could swing wildly against them, investors who don't want to go broke will buy the bitcoins at what they think is a cheap price, option the bitcoins when they feel the price is overbought and likely to fall to lock in their gains, with the worst case scenario being they sold their bitcoins at what seemed like a high price, but in fact wasn't.

Your upside is big, but your downside is capped.

So the market will stay small because going naked and getting it wrong could be so dramatically expensive.
I think we all know how options work.

Thats what I thought too.. at first...
Right?

Why would someone choose to take settle in cash rather than take delivery when at the very least there are less fees for the transaction.

Just to be clear here, are you asking why people would trade options to make money?

"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution" - Satoshi Nakamoto
*my posts are not investment advice*
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April 07, 2013, 11:53:33 AM
 #48

A lot of people would trade BTC options whether these options allow delivery or not.

I only state that I personally could/would use them as a method to purchase BTC if these options allowed/required the option to take delivery.

Also, if people sell naked BTC options they get what they deserve if someone asks for delivery.

But the real question is would the trading of these options on a large scale affect the price of BTC?

Assuming people take delivery of BTC then I only see it as another way for people to purchase BTC therefore it probably would cause more buying pressure.

Assuming people do not take delivery then these are only side bets on the price, denomintate in USD or whatever other fiat currency they are sold in, so no real but possibly some psychological effect.

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April 07, 2013, 02:26:20 PM
 #49

I think we all know how options work.  Here is how I would use them (once they exist):

Buy a call.  Assuming the price of BTC goes up before the option expires then I will exercise my option and take deliver of my BTC.

If the seller of the call actually had the BTC no problem, they ship me the BTC.

If the call was naked then the seller of the call will be forced to go the maket and buy BTC in order to cover the call.

Wala - a new way to buy BTC!





Exactly - Literally the most convenient way to accept payment if you wind up wanting to exercise your option, is to simply have them send you the bitcoins.  If the price is volatile, what kind of idiot would sell an option naked for any length of time when the price could swing wildly against them, investors who don't want to go broke will buy the bitcoins at what they think is a cheap price, option the bitcoins when they feel the price is overbought and likely to fall to lock in their gains, with the worst case scenario being they sold their bitcoins at what seemed like a high price, but in fact wasn't.

Your upside is big, but your downside is capped.

So the market will stay small because going naked and getting it wrong could be so dramatically expensive.
I think we all know how options work.

Thats what I thought too.. at first...
Right?

Why would someone choose to take settle in cash rather than take delivery when at the very least there are less fees for the transaction.

Just to be clear here, are you asking why people would trade options to make money?

No... I'm asking why you don't recognize taking profit in Bitcoin as somehow not making money compared to taking that profit in some other currency?    Even if it's just to take delivery of the bitcoins so they can sell them at market rate in their local currency, it's still more efficient to take delivery of the bitcoins than trying to move the value in anything else.

Do you not consider Bitcoins money?  We both agree people want to profit, but I don't understand what the incentive is to accept those profits in a currency that is more expensive, slower, and passes through more hands before getting to you rather than one that doesn't.  Please help me see what I'm missing, because your position is confusing to me.

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April 07, 2013, 03:00:27 PM
 #50

His point/position is that people that don't care about BTC can be happy as a pig in shit to just bet with dollars, take their profits and/or losses in dollars and never even touch BTC - and these people will be happy "making money" without even knowing what a BTC is let alone ever holding one.

The question I find interesting, the question posed by the OP is:  would this side betting have any affect on BTC (me, you)?  Do we care if all these side bets are placed or not?  I think not, but I am not 100% sure on that.

Can anyone come up with an example or explain why side bets, in dollars, even on a massive scale, would affect us over here in Bitcoinland?

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April 07, 2013, 03:08:45 PM
 #51

The only thing I have come up with so far is that someone could place massive bets on the price of BTC in dollars, profits to be taken in dolars and then come over here into Bitcoinland and attempt to manipulate the price in order to win their bets.

But price manipulation of BTC is nothing new.  We are used to it we have adapted and, it is not without risk.

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April 07, 2013, 04:46:28 PM
 #52

Options would help BTC in a number of ways.

If you can buy BTC options on CBOT (or other big exchanges, as opposed to MPEX), then mainstream adoption of BTC isn't far away - i.e. big companies start accepting them for bill payments, mainstream banks create BTC bank account forms, and ma & pa start buying groceries with them.

Ultimately though, the only things that count in terms of utility are the number of people using it, and the number of transactions.
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April 07, 2013, 05:44:59 PM
 #53

Also people with long (or short) positions on BTC who want a hedge.
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April 07, 2013, 05:45:52 PM
 #54

I haven't said you can't take BTC. On the contrary I explained several posts back how you can, because delivery is optional, and if you do all that happens is the broker pays your 'profit' from when the options is assigned in BTC instead of USD.

BurtW is right. Most people that trade options just do it for the currency the options are valued in and not the asset.

He is also right that you can use options to acquire an asset at a fixed price, by *OPTIONALLY* taking delivery of the good when the option is assigned.

I think you are confused because you don't seem to see how options work.

This is the theory behind what happens when an option is assigned (assuming they are both naked, which is usually the case):

When an option is assigned then the losing person must buy the asset at market price. The winning person buys the asset from the loser at the option strike price. The winning person then sells the asset back to the market at market price. Thus the loser has lost a dollar amount equivalent to the difference between the strike price and the market price multiplies by the number of options. Vice versa the winner has gained that same dollar amount.

In reality the underlying asset is not traded, instead the math is done and the money is transferred from one party to the other.

Effectively the profit and loss is derived form what would have happened if the two parties had bought/sold the equity. Hence the name derivative.

So now you can see how naked options are not only possible, but likely commonplace. In an earlier post you said something about how options can only be used to control the BTC price if the options market dwarfs the real market. I hope now you see how that can in fact be the case. I'f I've got millions riding on a given strike price, and it only costs me thousands to move the price where I want it ....

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April 07, 2013, 05:55:33 PM
 #55

I'f I've got millions riding on a given strike price, and it only costs me thousands to move the price where I want it ....

For a while, once this manipulation is discoved then I suspect the market for these hightly manipulated options would collapse.

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April 07, 2013, 06:41:42 PM
 #56

as long as I don´t have to pay for their losses then I don´t give a damn of what they do.. Wink
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April 07, 2013, 06:49:08 PM
 #57



BurtW is right. Most people that trade options just do it for the currency the options are valued in and not the asset.

And that's the faulty assumption - You're looking at bitcoin like an asset rather than a currency that's actually better at being money with lower costs at the very least.  That's why bitcoin is different when it comes to buying options.  Obviously if the market does not go in your favor, you will not exercise your option - but if the market DOES go in your favor, under what circumstance would it make sense to incur EXTRA COSTS to accept USD instead of just taking delivery of the BTC to whatever account you want at no cost to you (sender pays transaction fee)?

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April 07, 2013, 08:03:12 PM
 #58

I'f I've got millions riding on a given strike price, and it only costs me thousands to move the price where I want it ....

For a while, once this manipulation is discoved then I suspect the market for these hightly manipulated options would collapse.

Still waiting for that in the gold market Wink

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April 07, 2013, 08:06:55 PM
 #59

In reality the underlying asset is not traded, instead the math is done and the money is transferred from one party to the other.
Effectively the profit and loss is derived form what would have happened if the two parties had bought/sold the equity. Hence the name derivative.

If the underlying asset is not traded, then the real price cannot be known, especially in a small market like bitcoin.

If the "option" (to buy/sell BTC) is no longer an option and can be replaced with a settlement in fiat at the discretion of the "losing" party, then it is no longer an option, but only a side bet.

Designed for gamblers.

What did you think options were !?

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April 07, 2013, 08:20:31 PM
 #60



BurtW is right. Most people that trade options just do it for the currency the options are valued in and not the asset.

And that's the faulty assumption - You're looking at bitcoin like an asset rather than a currency that's actually better at being money with lower costs at the very least.  That's why bitcoin is different when it comes to buying options.  Obviously if the market does not go in your favor, you will not exercise your option - but if the market DOES go in your favor, under what circumstance would it make sense to incur EXTRA COSTS to accept USD instead of just taking delivery of the BTC to whatever account you want at no cost to you (sender pays transaction fee)?

Whether you like it or not, options behave like options!

The option contract has a value in whatever currency (typically dollars) and you can go long or short. The price of the contract depends on the strike price (typically in dolars) of the underlying asset (in this case BTC) that the contract is for.

I used the word asset because you can get options on anything commodities, equities or other currencies, like bitcoin. Its just terminology, the concept is identical.

You keep talking about fees? What fees? You go to your broker, you buy your option with dollars, you win or lose a certain amount of dollars. If you want to take delivery then you tick a box and your option will excercised and you'll get bitcoin (provided you have the funds to excercise your option).  

The broker makes its money on the spread, good look trying to avoid that... the house *always* wins.


"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution" - Satoshi Nakamoto
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