[ANN] Coinut.com - The only Bitcoin Options Exchange [beta]

[Indamuck]

Just listened to the Whaleclub interview on youtube ... well done.

Glad to hear that you are familiar with ThinkorSwim ... I'm excited for Coinut's potential. Please keep us updated on developments including site development, bringing on additional market makers, and possibly investment partners.

[chriswen]

Looks like they added chinese functionality.

[chriswen]

50k volume today which is quite a spike.  I'm wondering where this is being traded.

Also your market maker seems to be having margin requirement problems or something.  Vanilla orderbooks look thin.

[Indamuck]

50k volume today which is quite a spike.  I'm wondering where this is being traded.

Also your market maker seems to be having margin requirement problems or something.  Vanilla orderbooks look thin.

In the interview Mr. Wang seemed to indicate that Coinut is currently acting as their own market maker, but they are looking for someone, or others, to take on that roll. Specifically he said multiple times that they are 'using a modified black-scholes option pricing model.' The platform itself has no need for such a model, only the market maker does. So if they are using the model, they must be making the markets.

Hence the elephant in the room here: we are currently trading against Coinut itself, which has a severe information advantage and the power to make ad-hoc adjustments such as how the index is calculated and compiled, as well as margin requirements. Look through the progression of this thread and it is clear they've change the composition of their index at least once. And an aberrant move in that index did trigger their automatic margin call mechanism, at least once. It only takes 'once' to wipe some traders out ...

To be clear, I love the potential here, but they have a long way to go, and until they are able to address these kinds of things, there is reason to be cautious.

[wangxinxi]

50k volume today which is quite a spike.  I'm wondering where this is being traded.

Also your market maker seems to be having margin requirement problems or something.  Vanilla orderbooks look thin.

In the interview Mr. Wang seemed to indicate that Coinut is currently acting as their own market maker, but they are looking for someone, or others, to take on that roll. Specifically he said multiple times that they are 'using a modified black-scholes option pricing model.' The platform itself has no need for such a model, only the market maker does. So if they are using the model, they must be making the markets.

Hence the elephant in the room here: we are currently trading against Coinut itself, which has a severe information advantage and the power to make ad-hoc adjustments such as how the index is calculated and compiled, as well as margin requirements. Look through the progression of this thread and it is clear they've change the composition of their index at least once. And an aberrant move in that index did trigger their automatic margin call mechanism, at least once. It only takes 'once' to wipe some traders out ...

To be clear, I love the potential here, but they have a long way to go, and until they are able to address these kinds of things, there is reason to be cautious.

We changed the price index because originally we used the bid, ask amount as the weights, and it was manipulated by one smart guy. He put big orders in an exchange and immediately canceled them. This was repeated very frequently, and the result was that the final index biased toward that exchange. To avoid being manipulated again, we changed the index. However nobody received a margin call.

Now, we've fully disclosed our price index, and we will never manipulate the index. We currently have a few market makers. But we cannot disclose their identities for privacy issues. The point is, no matter who you are trading with, we will make the exchange transparent and fair. If you have any suggestions that can make this better, we will be glad to take.

BTW, we just added two important metrics. One is the Volume, and the other is the Open Interest. Please take a look.

[wangxinxi]

Looks like they added chinese functionality.

Good observation! Yeah, we are going to expand to China soon. Hopefully, you will see more transactions and liquidity. 

[chriswen]

BTW, we just added two important metrics. One is the Volume, and the other is the Open Interest. Please take a look.

Nice that you added this.

You also removed the quantity stat but as people said before that wasn't the most useful stat and you can still see the orderbooks.

It would seem that you get a lot of volume on the 30 min contracts.

[chriswen]

Yes also about the price index.  It's completely open now.  Average of bid price and ask price on Bitfinex, btc-e, and Bitstamp.  No more weird weighting.  Quite a good decision.

[Indamuck]

We changed the price index because originally we used the bid, ask amount as the weights, and it was manipulated by one smart guy. He put big orders in an exchange and immediately canceled them. This was repeated very frequently, and the result was that the final index biased toward that exchange. To avoid being manipulated again, we changed the index. However nobody received a margin call.

Now, we've fully disclosed our price index, and we will never manipulate the index. We currently have a few market makers. But we cannot disclose their identities for privacy issues. The point is, no matter who you are trading with, we will make the exchange transparent and fair. If you have any suggestions that can make this better, we will be glad to take.

BTW, we just added two important metrics. One is the Volume, and the other is the Open Interest. Please take a look.

Mr. Wang,

It appears that you changed the index composition in the dark ... without telling anybody. Is that the case?

You cannot sell financial instruments tied to a stated index, and then secretly change that index, no matter how minor, or good your intentions.

I know your intentions were good, but you open yourself to charges of fraud ... and those might be hard to refute.

If you change the index composition, it needs to be announced in advance, in a transparent manner.

I was concerned about index manipulation as well, hence my questions about it. Glad to see you were aware, and happy to see the recent updates!

[Indamuck]

That was... strange. The BTC/USD dropped before my eyes from $230 down to $50~ before recovering back up. Wiped the limit orders off of the screen. Was that just a glitch?

This looks like your automated margin call system was triggered by some aberration to your in-house calculation of the index. I believe he posted this before you began offering vanilla options. If he had a portfolio of vanilla options, in addition to seeing his open orders cancel your system likely would have auto-liquidated him with market orders. Basically that could have wiped him out ... because of glitched up systems. This is the type of risk I think about when considering your vanilla options ...

[chriswen]

Well considering that they were able to roll back all the orders I have trust that they'll be able to fix problems. (during index bug)

Also I've been writing options and the margin requirements feel fine. I've also realized that while buying options gives you inherent leverage, selling options is the exact opposite.  You take a return but with risk.

Also I've recently placed a withdrawal request, lets see how long it'll take to process on a Sunday.

[krach]

I have made a script so that you can chart the index. I am just using the close price and not ask or bid since I do not have that info. At least you can lay it on top of another exchanges candles and get an idea where the index is.
https://www.tradingview.com/script/SpPMcsQh-COINUT-INDEX-BITCOIN-OPTIONS/

[Indamuck]

Well considering that they were able to roll back all the orders I have trust that they'll be able to fix problems. (during index bug)

Also I've been writing options and the margin requirements feel fine. I've also realized that while buying options gives you inherent leverage, selling options is the exact opposite.  You take a return but with risk.

Also I've recently placed a withdrawal request, lets see how long it'll take to process on a Sunday.

Yeah, but option sellers are not agreeing to take on 'fuck'd up system risk.'

My worst fear is that they build a meaningful customer base, get some real momentum, and then their index calculation goes awry and they erroneously liquidate thousands of clients. Etc. etc ... I was trading on Bitfinex during the extreme market conditions a year ago, and that leading exchange simply shut down their trading engine, and/or turned off their margin mechanism, on a couple of occasions. They came out of it more robust, and I still trade there, but that is not ideal by any means. It cost me a few thousand US$, and no, there was no recourse.

Coinut only has one reputation to lose. I'd rather we held them to the fire NOW, and they address these critical things while their reputational risk is still low, than later, when the 'cost' is likely to be much higher.

[chriswen]

I'm wondering if there's a flaw in the margin requirements.  I sold some puts.  I'm wondering why that now that the price has gone up my margin requirement has also went up even though theoretically they should be more safe.

[Indamuck]

I'm wondering if there's a flaw in the margin requirements.  I sold some puts.  I'm wondering why that now that the price has gone up my margin requirement has also went up even though theoretically they should be more safe.

I'm guessing your margin requirement has risen by about 10%, no?

Earlier I believe he said they've set the vanilla margin requirement at '40% of the underlying principal.' Forty percent of $250/btc is MORE than forty percent of $230/btc. Be careful, if the btc price keeps rising, you could get a margin call on your short puts!?! How's that for 'f*ck'd up system risk?'

I haven't touched the vanilla options, don't believe I will.

[wangxinxi]

I'm wondering if there's a flaw in the margin requirements.  I sold some puts.  I'm wondering why that now that the price has gone up my margin requirement has also went up even though theoretically they should be more safe.

I'm guessing your margin requirement has risen by about 10%, no?

Earlier I believe he said they've set the vanilla margin requirement at '40% of the underlying principal.' Forty percent of $250/btc is MORE than forty percent of $230/btc. Be careful, if the btc price keeps rising, you could get a margin call on your short puts!?! How's that for 'f*ck'd up system risk?'

I haven't touched the vanilla options, don't believe I will.

We are checking this. You guys are quite early. Before you guys, there were seldom options sellers. Will fix this issue soon.

[wangxinxi]

The vanilla option margin problem should have been fixed.

[chriswen]

The vanilla option margin problem should have been fixed.

What changes did you make?

[Indamuck]

The vanilla option margin problem should have been fixed.

What changes did you make?

Lol ...

It's a surprise!

[wangxinxi]

The vanilla option margin problem should have been fixed.

What changes did you make?

Lol ...

It's a surprise!

Guys, there is no surprise. It's still
Option Price + 0.01*Maximum ((40% * Underlying Price - Out of the Money Amount), (20% * Underlying Price))
Originally, the sign of Out of the money amount is wrong. We just fixed it.