XMR futures/options OTC thread

[rpietila]

Hi! I wanted to start this thread because I am interested in having derivatives for the XMR/BTC rate. That the trading pair is both crypto, should make it much easier than dealing with the legacy system fiat currency. Please use this for discussion of the subject, as well as actual structured offers to conduct trade.

[rpietila]

In the very beginning, I'd like to issue PUT options. They work such that the buyer has a right, but no obligation, to sell a certain amount of XMR at a fixed price in BTC, and the right in valid for a certain time, and if it is not exercised, it expires.

How would you benefit from buying the PUTs. Example. You own 10000 XMR and in your opinion, it's time to make it or break it. The price is 0.0039, and you think it will either crash or boom in the near future. But if it crashes, you can not actively monitor it, and don't know if the crash is final or a bear trap, and selling such an amount would mean huge slippage. So there is no practical way to cut the losses, until it is too late. (If it goes up, all is naturally fine.)

If you buy full coverage for the sum in 0.0035-30day-PUTs, it will cost about 0.0004, paid upfront. If the 10000 XMR is all you have, you will have to sell 1000 XMR to pay the premium, and you consequently have 10% less upside. But as for the downside, which previously was potentially 100%, you have now hedged up to 90%! If the price drops 10%, you start to benefit from using the PUT, and there is no penalty for waiting longer. You always get to sell at exactly 0.0035, no matter if the exchange price is 0.003 or 0.001.

What if you are a speculator who has secret information of Monero's demise? Buying PUTs is a risk free way to take advantage. If Monero price is halved as a result of your information, you reap 3-4x gains. You don't need to own XMR to buy the PUT. Prior to exercising, you can just buy them cheaply at the exchange and exercise then at the higher strike price.

I am ready to offer different maturities (30-60-90 days). Note, the contract is not a CFD "contract-for-difference". This is an actual obligation by me to buy your moneros at a fixed price if you so request, any time until the expiration of the contract.

[rpietila]

Monero is seen by many to offer explosive upside. Although in general I think that investing in BTC is very high leverage itself, and investing in Monero is higher still, and I advocate investing only maximum of 50% of cryptostash to Monero, and for big stashes even much less (5-10%), I also think that there should be vehicles of effectively betting for even greater upside in Monero.

Leverage - that is. By CALL options.

a CALL option gives you the right, but no obligation, to buy moneros at a price that typically is higher than the current price. The crux of the matter is that with cheap CALLs, you can command a large position with small capital. If your prediction comes true and the XMR price rises over the strike price, you are "in the money", and can get 2-10x the leverage compared to the alternative that you had just bought the coins outright. The downside, of course, is that if the price does not rise, you lose all. For this reason CALL options are typically employed in small amounts to give additional boost to the core position.

Although I believe in the upside myself, since I am proficient in statistics, I hope I am able to offer CALL options also that give potential for leverage, but are not an outright hazard to me.

I own large enough amounts of BTC and XMR that I can 100% cover all my obligations with escrow.

[rpietila]

Tentatively, and subject to feedback, I could be offering the following options:

Code:

Contract full name	Maturity	Type	Strike	Price	B.E.	Leverage
140930-CALL-0.0200	30.9.2014	CALL	0,02000	0,00041	0,02041	951 %
140930-CALL-0.0100	30.9.2014	CALL	0,01000	0,00082	0,01082	476 %
140930-CALL-0.0080	30.9.2014	CALL	0,00800	0,00104	0,00904	375 %
140930-CALL-0.0060	30.9.2014	CALL	0,00600	0,00139	0,00739	281 %
140930-CALL-0.0050	30.9.2014	CALL	0,00500	0,00166	0,00666	236 %
140930-CALL-0.0040	30.9.2014	CALL	0,00400	0,00206	0,00606	190 %
140930-CALL-0.0030	30.9.2014	CALL	0,00300	0,00284	0,00584	137 %
140930-PUT-0.0045	30.9.2014	PUT	0,00450	0,00111	0,00339	353 %
140930-PUT-0.0040	30.9.2014	PUT	0,00400	0,00071	0,00329	553 %
140930-PUT-0.0035	30.9.2014	PUT	0,00350	0,00033	0,00317	1166 %
140930-PUT-0.0030	30.9.2014	PUT	0,00300	0,00020	0,00280	1957 %
140930-PUT-0.0025	30.9.2014	PUT	0,00250	0,00013	0,00237	3107 %

B.E.="breakeven", the BTC/XMR rate, above(CALL)/below(PUT) which the contract is profitable taking the price of the contract into account.


The terms would be such:

- I deposit the whole collateral amount of BTC or XMR with a trusted escrow. I have reserved up to BTC100 and 30,000 XMR for this.

- One contract size is for 1,000 XMR. There is no upper limit except the total reserve.

- Upon interest, the going price for a contract will be quoted in BTC and XMR. The published prices are not binding.

- The price of the contract must be paid in 10 minutes from the quote.

- An office fee of 10 XMR is added to every transaction (buying or exercising the contracts), this is a flat fee, no matter how many contracts are bought or exercised simultaneously.

- The contract can be exercised at any moment during its maturity. It expires if exercised, or if it is still unexercised at the end of its last day, UTC.

- To exercise the contract, the holder must send the appropriate amount of BTC (in case of a CALL option), or XMR (in case of a put option) to the escrow, who will promptly send the XMR (in case of a CALL option) or BTC (in case of a PUT option) back to the contract holder.

- It is upon my, or the escrow's, discretion, whether the option can be exercised as a contract-for-difference (CFD). If I (or the escrow) agrees, the difference between the strike price and the market price of the asset is send to the contract holder, without his needing to send anything in return. This service carries a slippage fee, calculated from the Poloniex orderbook, and the amount offered is entirely at the discretion of me (or the escrow).

- The options may not be available to be bought if the issuer is not online. The right to exercise the option is not dependent on this however, because the only thing needed for exercise is the contract holder making a transaction to the escrow address for his part of the exercise. This timestamp will determine if the contract was exercised or not, and the exercise price is determined by the contract alone, and is not dependent of the market price.

[aminorex]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.  

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

anyhow, this is really great news for xmr.  rock on, sir.

[rpietila]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.   

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

If there is a market demand for this, the roadmap would be as follows:

- Setting up a consortium of XMR(+BTC) owners that can provide ultimate liquidity, to the tune of 5-10% of the current mintage.
- Offering multiple expirations, possibly at least 3 months to the future.
- Offering two-way prices for the contracts to be bought and sold without exercising them.

Having leveraged markets for such a volatile underlying as XMR is, is risky to the issuer. The only remedy is that the issuer is publicly known to be in the position to "control" the market, so that every attacker with his short-term plans to manipulate the price must credibly fear a speedy retaliation.

[iourzzz]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.  

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

If there is a market demand for this, the roadmap would be as follows:

- Setting up a consortium of XMR(+BTC) owners that can provide ultimate liquidity, to the tune of 5-10% of the current mintage.
- Offering multiple expirations, possibly at least 3 months to the future.
- Offering two-way prices for the contracts to be bought and sold without exercising them.

Having leveraged markets for such a volatile underlying as XMR is, is risky to the issuer. The only remedy is that the issuer is publicly known to be in the position to "control" the market, so that every attacker with his short-term plans to manipulate the price must credibly fear a speedy retaliation.

Very exciting initiative. It can attract even wider interest to XMR market.

[bigj]

Tentatively, and subject to feedback, I could be offering the following options:

Code:

Contract full name	Maturity	Type	Strike	Price	B.E.	Leverage
140930-CALL-0.0200	30.9.2014	CALL	0,02000	0,00041	0,02041	951 %
140930-CALL-0.0100	30.9.2014	CALL	0,01000	0,00082	0,01082	476 %
140930-CALL-0.0080	30.9.2014	CALL	0,00800	0,00104	0,00904	375 %
140930-CALL-0.0060	30.9.2014	CALL	0,00600	0,00139	0,00739	281 %
140930-CALL-0.0050	30.9.2014	CALL	0,00500	0,00166	0,00666	236 %
140930-CALL-0.0040	30.9.2014	CALL	0,00400	0,00206	0,00606	190 %
140930-CALL-0.0030	30.9.2014	CALL	0,00300	0,00284	0,00584	137 %
140930-PUT-0.0045	30.9.2014	PUT	0,00450	0,00111	0,00339	353 %
140930-PUT-0.0040	30.9.2014	PUT	0,00400	0,00071	0,00329	553 %
140930-PUT-0.0035	30.9.2014	PUT	0,00350	0,00033	0,00317	1166 %
140930-PUT-0.0030	30.9.2014	PUT	0,00300	0,00020	0,00280	1957 %
140930-PUT-0.0025	30.9.2014	PUT	0,00250	0,00013	0,00237	3107 %

Nicely done. But it reminds me of the anyoption.com hoax business. Using options in illiquid markets is like gambling in a casino (knowing your chances to win are way below 50%). Of course it makes sence to offer these (option-) games if you are in control, e.g., by having a big portion of money in your hands, or by owning the casino, etc.

[Vanderi]

Please explain like I'm 5 - what happens if I give 1k XMR only because I want to invest in you as a person?

I certainly think many people find Risto Pietila as an establishment in himself here and believe in his undertakings, but do not hold advanced economic grasp on .....different offerings. That said it might be beneficial to explain it further.

Thanks.


edit* sorry I missed the first posts - i followed a clicky from a certain location directly to the options post. But please do elaborate if you still feel the need, I will read the OP.

[Hunyadi]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.   

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

If there is a market demand for this, the roadmap would be as follows:

- Setting up a consortium of XMR(+BTC) owners that can provide ultimate liquidity, to the tune of 5-10% of the current mintage.
- Offering multiple expirations, possibly at least 3 months to the future.
- Offering two-way prices for the contracts to be bought and sold without exercising them.

Having leveraged markets for such a volatile underlying as XMR is, is risky to the issuer. The only remedy is that the issuer is publicly known to be in the position to "control" the market, so that every attacker with his short-term plans to manipulate the price must credibly fear a speedy retaliation.

Doesn't that mean, that issuer could manipulate the price?

[rpietila]

Doesn't that mean, that issuer could manipulate the price?

Issuer can freely decide the price of the option, including the buy/sell rates in the aftermarket.

XMR trading volume is typically 100-300 BTC per day in Poloniex alone, so anyone having this much in the trading kitty is equally able to influence the price of the underlying.

Options are not to be used as lottery tickets. If you purchase a call, meaning that you are bullish and want to leverage the move up, and the move up does not materialize due to suspected manipulation, you are free to take advantage of the low prices by buying the coins in the market instead, etc.

In the end, market always wins.

[rpietila]

It would be trivial to offer leveraged positions also, manually. Like this:

- send guarantee (33% of the position in BTC) to the escrow
- you can buy and sell with Poloniex rates
- position will be margincalled at 25% and closed at 15%
- any slippage losses remain with the issuer
- BTC loan rate is not really too high, eg. 0.04% daily

And similarly with shorts...

[luigi1111]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.  

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

anyhow, this is really great news for xmr.  rock on, sir.

Let's be real here, an actual market wouldn't let him offer ATM calls at a 300%+ vol premium to ATM puts.

What's this about there being risk to the issuer? From what I can tell, he's only offering fully covered sales, a la "covered call" and "cash-secured put". There isn't really any meaningful risk to the issuer. The only reason it's still attractive (to the seller) even fully covered is the sky-high vol (which could absolutely be justified, even though it's artificial/arbitrary).

With that said, I'd love to offer a few contracts at these prices with the same conditions as Risto's.

[bobabouey2]

I ran a quick check of the implied volatilities.  It is pasted as an image, I can try and upload the excel file later.  However, you can test any of the assumptions at an online calculator, like here:  http://www.math.columbia.edu/~smirnov/options13.html

Edit: Everything with a dollar sign is actually monero in thousands.

It appears based on this analysis that these options are priced using something other than black scholes.  The far out of the money options have higher lower implied volatility than the nearer or in-the-money options.  And the puts have much lower implied volatility than the calls.  From a Black Scholes perspective, this would indicate the better trades are the more out-of-the-money calls, or the puts.

The reason for the row titled "Differ (observed - model) is the way I threw this together was from an excel template that requires a "what-if" analysis on each option calculation to get an implied price that is very close to the listed price.

I'm aware that Black Scholes is not perfect, but I think the information is interesting.

Risto, are you able to calculate actual historical volatility from your dataset of historical trading prices of poloniex, or could someone point me to a source?  Poloniex only seemed to provide more recent trade data, and I don't know how to convert the graph information into data.

[Scott J]

this will become a lot more interesting when you are making market (buying as well as selling) and there are at least two expirations in play.   

you are sufficiently capitalized for now, but if you expose yourself more in future, do beware of insiders/hackers breaking your statistics.

If there is a market demand for this, the roadmap would be as follows:

- Setting up a consortium of XMR(+BTC) owners that can provide ultimate liquidity, to the tune of 5-10% of the current mintage.
- Offering multiple expirations, possibly at least 3 months to the future.
- Offering two-way prices for the contracts to be bought and sold without exercising them.

Having leveraged markets for such a volatile underlying as XMR is, is risky to the issuer. The only remedy is that the issuer is publicly known to be in the position to "control" the market, so that every attacker with his short-term plans to manipulate the price must credibly fear a speedy retaliation.

Nice idea, I like it.

However, none of the quoted options look like they would profit to me.

If or when you offer expirations longer than 3 months away, I could be interested.

[GreekBitcoin]

So lets say that i have 1000 XMR and i believe the price will go up soon. I believe it can double really soon due to a bubble or due to something major...Mining is getting more difficult by the month after all...
Lets also assume that i dont have time to watch the markets and trade for 45-60 days because of too much workload workload.

What should i do?

[luigi1111]

So lets say that i have 1000 XMR and i believe the price will go up soon. I believe it can double really soon due to a bubble or due to something major...Mining is getting more difficult by the month after all...
Lets also assume that i dont have time to watch the markets and trade for 45-60 days because of too much workload workload.

What should i do?

Buy more?

[GreekBitcoin]

So lets say that i have 1000 XMR and i believe the price will go up soon. I believe it can double really soon due to a bubble or due to something major...Mining is getting more difficult by the month after all...
Lets also assume that i dont have time to watch the markets and trade for 45-60 days because of too much workload workload.

What should i do?

Buy more?

I am mostly trying to see if someone wants to offer some sort of term deposits...

[luigi1111]

So lets say that i have 1000 XMR and i believe the price will go up soon. I believe it can double really soon due to a bubble or due to something major...Mining is getting more difficult by the month after all...
Lets also assume that i dont have time to watch the markets and trade for 45-60 days because of too much workload workload.

What should i do?

Buy more?

I am mostly trying to see if someone wants to offer some sort of term deposits...

You're basically wanting to get some leverage? Like buying a call option? Or do you want to buy on margin?

[rpietila]

I ran a quick check of the implied volatilities.  It is pasted as an image, I can try and upload the excel file later.  However, you can test any of the assumptions at an online calculator, like here:  http://www.math.columbia.edu/~smirnov/options13.html

Edit: Everything with a dollar sign is actually monero in thousands.

It appears based on this analysis that these options are priced using something other than black scholes.  The far out of the money options have higher lower implied volatility than the nearer or in-the-money options.  And the puts have much lower implied volatility than the calls.  From a Black Scholes perspective, this would indicate the better trades are the more out-of-the-money calls, or the puts.

The reason for the row titled "Differ (observed - model) is the way I threw this together was from an excel template that requires a "what-if" analysis on each option calculation to get an implied price that is very close to the listed price.

I'm aware that Black Scholes is not perfect, but I think the information is interesting.

Risto, are you able to calculate actual historical volatility from your dataset of historical trading prices of poloniex, or could someone point me to a source?  Poloniex only seemed to provide more recent trade data, and I don't know how to convert the graph information into data.

My model is not B-S, it is "rpietila BS" 

The higher implied volatility in in-the-money calls is due to the options being American-style (B-S pricing method is valid for European options).

The much lower volatility in puts is due to my own bias in wanting the people to buy puts, because then I can only win - either I get cheap moneros or get to keep the premiums. With calls, my bullishness is visibly shown, and also the options pricing methods do not take into account the fat tail that is many times manifested with cryptos (10x or even 50x increases in a month).

Also it is possible for me to support the price from going down, but impossible to prevent it from going up.

Poloniex offers all historical trades as a data dump.