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Author Topic: Reverse auction: Buying lookback call option on BTC with floating strike, 1mth  (Read 2426 times)
ineededausername
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January 03, 2012, 05:20:10 PM
 #1

This auction is nonbinding.
I am buying the right to buy $1000 worth of BTC at the optimal price from 1/5/2012 to 2/5/2012 (meaning that I will buy at the lowest price in that time period).  This option will mature on 2/5/2012, and is only exercisable on that day.
This auction is a reverse auction; there is no starting bid or minimum increment.  You can bid whatever you want since it's nonbinding.  I'm simply looking for a price estimate, and will consider any good offer.

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ineededausername
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January 03, 2012, 05:21:02 PM
 #2

This auction ends on 1/5/2012 11:59 PM EST.

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January 03, 2012, 05:26:08 PM
 #3

$9001

It is pitch black. You are likely to be eaten by a grue.

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January 03, 2012, 11:12:08 PM
 #4

How is the lowest price determined? How will you be paying?

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January 04, 2012, 12:58:45 AM
 #5

How is the lowest price determined? How will you be paying?


Lowest price is determined by the lowest of the mtgox daily lows; you will be paid with mtgoxUSD since it's instant, easy and non-reversible.

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January 04, 2012, 01:51:45 AM
 #6

How will you manage your counter-party risk? It has real potential to blow up in the face of whoever bids on this.

$9000.

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January 04, 2012, 01:53:35 AM
 #7

How will you manage your counter-party risk? It has real potential to blow up in the face of whoever bids on this.

I'll look at WoT ratings and make a decision based on price/rating.
Remember, this is NONBINDING so please bid a serious amount Smiley

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January 04, 2012, 10:41:34 AM
 #8

How will you manage your counter-party risk? It has real potential to blow up in the face of whoever bids on this.

I'll look at WoT ratings and make a decision based on price/rating.
Remember, this is NONBINDING so please bid a serious amount Smiley

It's hard to know what a serious amount is. The potential risk is high and hard to price or hedge. If the price spikes down to 50 cents for a millisecond and then back to $5, I'd be losing $9000 on the option, so the premium needs to compensate me for the risk.

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January 04, 2012, 10:59:31 AM
 #9

Why not the lowest daily weighted average for the period? Should be approx the same as the lowest value, after odd spikes are averaged out. And when you say non-binding does that mean either of the parties can just decide to not go through with the deal at maturation?
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January 04, 2012, 11:27:33 AM
 #10

Why not the lowest daily weighted average for the period? Should be approx the same as the lowest value, after odd spikes are averaged out. And when you say non-binding does that mean either of the parties can just decide to not go through with the deal at maturation?

I think he means your bids here are non-binding, but form the basis for discussions towards reaching a mutually binding agreement, negotiated by PMs. Once the option writer has received the premium, the option would be binding on them. INAUN could decide at maturity whether to exercise the option, although it would only make sense not to exercise the option if the price on the last day was the lowest, or the price looked to be headed lower. Otherwise, such an option would definitely be in the money.

El Cabron
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January 04, 2012, 11:33:12 AM
 #11

I would bid $8,000.

I would make it lower if we did a daily average, if Gox get hacked again and .01 lol!

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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
brendio
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January 04, 2012, 11:46:35 AM
 #12

As soon as I work out this equation, I'll give you a quote:

El Cabron
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January 04, 2012, 11:51:07 AM
 #13

As soon as I work out this equation, I'll give you a quote:


Lol, what is it?

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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
brendio
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January 04, 2012, 11:58:12 AM
 #14

As soon as I work out this equation, I'll give you a quote:


Lol, what is it?

The Black–Scholes model pricing equation for a lookback call option.

I'll do $1100 for an option exercisable at the lowest weighted average price reported by bitcoincharts.com.

El Cabron
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January 04, 2012, 12:06:33 PM
 #15

As soon as I work out this equation, I'll give you a quote:


Lol, what is it?

The Black–Scholes model pricing equation for a lookback call option.

I'll do $1100 for an option exercisable at the lowest weighted average price reported by bitcoincharts.com.

I was looking at Black-Scholes before but did not remember that formula, not that I should have.   

I kinda think $1100 is a bit high because you will have the ability to buy bitcoins on the way down lowing your risk. Every time BTC goes down say 33% buy $1000 worth of bitcoins. You can do that 11 times with $11k.

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January 04, 2012, 12:09:41 PM
 #16

As soon as I work out this equation, I'll give you a quote:


Lol, what is it?

The Black–Scholes model pricing equation for a lookback call option.

I'll do $1100 for an option exercisable at the lowest weighted average price reported by bitcoincharts.com.

10% premium seems pretty low. I was thinking at least 20% with the volatility of the bitcoin USD market.

BTW, this is not an official offer, just commentary.
El Cabron
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January 04, 2012, 12:22:27 PM
 #17

I totally did not read that correctly, sorry. I thought you said 11,000 lol!

$1,100 is interesting. Is that a number you would trade on?

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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
brendio
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January 04, 2012, 12:54:38 PM
 #18

As soon as I work out this equation, I'll give you a quote:


Lol, what is it?

The Black–Scholes model pricing equation for a lookback call option.

I'll do $1100 for an option exercisable at the lowest weighted average price reported by bitcoincharts.com.

10% premium seems pretty low. I was thinking at least 20% with the volatility of the bitcoin USD market.

BTW, this is not an official offer, just commentary.
Actually, it's 110% by my calculations.

El Cabron
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January 04, 2012, 01:00:22 PM
 #19

Okay that is what I thought at first:) He has to pay $1000 at the end of the month to use the option.

In that case please ignore the PM I just sent you.

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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
ineededausername
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January 04, 2012, 01:37:59 PM
 #20

Oh, you actually ran the model!  So what did LCt come out to be?

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brendio
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January 04, 2012, 01:54:37 PM
 #21

Oh, you actually ran the model!  So what did LCt come out to be?

No, I pulled a number out of my backside based on the assumption that the bitcoin price could easily halve or double over the next month, so the required premium would need to cover me for that eventuality. I come to the conclusion that these options are scary things to write.

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January 04, 2012, 02:36:38 PM
 #22

I come to the conclusion that these options are scary things to write.

They sure are Grin

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January 04, 2012, 02:50:55 PM
 #23

I would be more willing to write an option deal like this with a fixed number of BTC instead of a fixed USD amount. So an option to buy 200 btc at $5 would be something I would be more willing to underwrite as your risk profile is easy to comprehend.

Maybe I'm just a tad stupid, but giving someone the option $1000 of btc at the lowest price over the next thirty days is quite a volatile prospect. If the price goes back to $2.50, that means you need to have 400 btc on hand to cover the $1k buy and be willing to sell those 400 btc at that price + the premium.

Also, the growth pattern of the purchasing power of the $1000 does not sit right in my stomach. You have the opportunity to make at most your premium, but your risk exposure is much greater than that. One would need to be playing both sides of the fence in order to make this work.
El Cabron
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January 05, 2012, 02:20:46 AM
 #24

I would be more willing to write an option deal like this with a fixed number of BTC instead of a fixed USD amount. So an option to buy 200 btc at $5 would be something I would be more willing to underwrite as your risk profile is easy to comprehend.

Maybe I'm just a tad stupid, but giving someone the option $1000 of btc at the lowest price over the next thirty days is quite a volatile prospect. If the price goes back to $2.50, that means you need to have 400 btc on hand to cover the $1k buy and be willing to sell those 400 btc at that price + the premium.

Also, the growth pattern of the purchasing power of the $1000 does not sit right in my stomach. You have the opportunity to make at most your premium, but your risk exposure is much greater than that. One would need to be playing both sides of the fence in order to make this work.


Yes, and one would need deep pockets to cover the loss. I think I would be willing to take the risk near Brendio's bid but not much lower:)

The way I would do it is buy $1000 BTC now and then keep $2000 on hand to buy BTC at lower and lower prices. If BTC goes too low then I would have to get more funds. But the payoff would be decent assuming this did not happen.

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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
ineededausername
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January 05, 2012, 02:45:48 AM
 #25

OK, concluded that your offers are too pricey (read: not enough dumb people on this forum offering me 5% Smiley )
Sorry everyone.  I think $1100 is reasonable but I don't feel like risking it.

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January 05, 2012, 03:12:06 AM
 #26

OK, concluded that your offers are too pricey (read: not enough dumb people on this forum offering me 5% Smiley )
Sorry everyone.  I think $1100 is reasonable but I don't feel like risking it.

I didn't think you'd make a deal, but you do bring up some interesting thought experiments.

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January 05, 2012, 04:50:32 AM
 #27

OK, concluded that your offers are too pricey (read: not enough dumb people on this forum offering me 5% Smiley )
Sorry everyone.  I think $1100 is reasonable but I don't feel like risking it.

I didn't think you'd make a deal, but you do bring up some interesting thought experiments.

We do need an options market... we've needed one for a long time.

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brendio
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January 05, 2012, 05:46:48 AM
 #28

OK, concluded that your offers are too pricey (read: not enough dumb people on this forum offering me 5% Smiley )
Sorry everyone.  I think $1100 is reasonable but I don't feel like risking it.

I didn't think you'd make a deal, but you do bring up some interesting thought experiments.

We do need an options market... we've needed one for a long time.

Agree. I think bitoption.org still has some of my coin. Did alright out of it while it lasted.

El Cabron
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January 05, 2012, 10:35:35 AM
 #29

I have also been wanting an options market. Sadly I am not skilled enough to be able to set one up.

Sorry El Cabron, you are banned from posting or sending personal messages on this forum.
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https://bitcointalk.org/index.php?topic=622250.msg7030081#msg7030081
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