MPEx now lists a bunch of options with the same terms as those on MPOE. On MPEx, traders can now more easily set their own prices and even write options, so long as they have significant BTC backing, so there is no counterparty risk.
This is correct. It does miss some points, to wit:
1. On MPOE the fee for selling was 1%. On MPEx it is 0.2%. This is simply due to the significant drop in clerical costs necessary to enter and clear transactions.
2. On MPOE the traders selling to the market (so not to MPOE itself) had to enter their bids via email, which adds a delay. On MPEx this is done instantaneously and with much less hassle. On MPOE there was no order cancellation, this exists in MPEx.
3. Traders could still write their own options on MPOE as long as they had the backing, nothing changed in that respect.
MPOE acts as a market maker and any options it writes are treated in the same way as if they were sold on MPOE (i.e. MPOE bond and shareholders share the risk of loss or the benefit of gains).
This is correct.
If I split some bitcoin into call and put options and sell them, then MPOE has nothing to do with this transaction, as the transaction is between me and the trader who bought the options, and MPEx acts just as the escrow to ensure that the option is fulfilled.
This is also correct. As long as you don't sell/buy into an MPOE order then MPOE is no party to your transaction.
Note: I'm still unclear on the MKOPT command and how exactly it differs from the SPLIT command, but that's a question for another post/thread.
SPLIT creates CALL and PUT pairs, at no cost. Thus if you split 100 BTC when the BTC/USD is 5.0 and ask for a strike of 5.0 you will receive 50 O.BTCUSD.C050T and 50 O.BTCUSD.P050T.
MKOPT creates an arbitrary number of either CALL or PUT options, at a cost of 2%. Thus if you want 100 O.BTCUSD.C050T you will be charged 102 BTC, of which 100 are held in reserve and returned upon those options' expiration out of the money (in full) or exercise (in part).
Side question: Is interest paid on BTC balances held in escrow to cover the potential for options being exercised, or on BTC held for unfilled orders?
There is no interest paid on balances held in escrow (to cover for written options). Interest is paid exclusively on BTC balances held as cash in your account (there is no interest paid in BTC locked up in buy orders in the book either, for instance).
It is true the same as before that MPOE and MPEx customers have counterparty risk with Mircea Popescu, and the continued functioning of both rests on him continuing to make good on his obligations. Nothing has changed, whether MP pays interest or not.
This is true.
When MPOE was small, the risk of having MP as the "lender of last resort" was small, as any losses he incurs were small relative to the value of his reputation.
This is also true, of course it speaks of a somewhat (at least in bitcoin terms) distant past.
December 2011 for instance saw a total exposure over 5k contracts, which was entirely financed by Mircea Popescu. While it is true that March 2011 saw total exposure of ~3.5k contracts, which is significant, and April is on track to probably beat that, there are significant amounts deposited in bonds (for instance in March Mircea Popescu himself didn't get to lend a single bitcent to financing MPOE
This would mean that in terms of exposure to the underwriting done by MPOE the record of December 2011 might take a while to beat. As a general principle I understand the policy on this subject to be "superficial tension", which is to say in the ideal case Mircea Popescu's capital is right there and available but not really actually needed. Obviously like all macrofinance it's a balancing act.
As the various MP enterprises grow, however, customers should be more concerned about what MP does with bitcoins so they can make a proper assessment of the counterparty risk they are taking on.
This is very true, and it is in recognition of this very valid and very important observation that I am here to begin with, that a lot of effort is being invested into rather elaborate (and, to be fair, standards-establishing for the bitcoin community) reporting and so on.
If there is ever to exist real bitcoin economy, and if bitcoin is ever to be taken seriously as a medium of exchange, customers do indeed need to be very concerned about what their counterparties (and not just MP) do with the bitcoins, what the business plans actually are, what the quality of published information is and so forth.
I would dare say that the most important thing any one person with over a hundred bitcoins to their name can do right now, today, to ensure a future for bitcoin is precisely to take every care to make proper assessment of all counterparty risk they are taking on, to insist on disclosures and so forth.
This becomes especially true as MP issues more and more assets (e.g. PURE.SYNTH, which is not backed by underlying assets.)
Absolutely. Synthetic assets of that type are probably the best example of an instrument that profoundly involves the credit of the issuer. Let's pause a moment and take note of the truly extraordinary circumstance that such fiat issuance is beyond the conceivable in the "real" world of fiat currencies, as maligned as they may be, yet it is not only common but almost the norm in the "realer" world of bitcoin, which isn't fiat (and has no inflation - other than the 35% a year from mined inflows ofcourse). In fact Mircea Popescu's issue of PURE.SYNTH is... not quite as unbridled, so to speak, as a large swath of securities or instruments purporting to be securities at the present moment floating about.
Then again bitcoin is young.