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Author Topic: [ANN] Trade Bitcoin Options - BitcoinOPX.com [NOW OPEN]  (Read 17492 times)
Goomboo
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June 03, 2012, 05:18:17 AM
 #101

I just ran the numbers for the past 52 weeks.

-In a given week, there is a 32% chance that BTC can go up or down by 16% or more and a 5% chance that it can go up or down by 31% or more
-This means that 32 out of every 100 contracts on your site will receive a shortfall in payout (in the long run)
-If you were to require a 31% margin requirement, only 5 out of every 100 contract on your site would receive a shortfall (in the long run)

The above shortfall numbers are based on a 16% price move across a 1 week exposure - you are using a 15% weekly threshold, which actually means that you stand an even greater chance of facing shortfalls.

See how brutally unfair it is to only allow the buyers of options to receive a 15% price move payout?  Yeah sure it scales with time to maturity, but enough to cover the decimating volatility of this market?

Earlier you mentioned value and how you are worried about not allowing traders to find value - that is not the job of an exchange.  Your job is to facilitate trade.  The main task of an exchange is to get out of the way and allow the market participants to determine what fair value is.  If your exchange has rules which are not based on market data, it inhibits an otherwise healthy balance of buyers and sellers.

Notice how every single thing I have been hammering you about has been something which would inhibit trade?  (Market hours, contract size, revenue shortfall, arbitrary price thresholds)

---
Just to see that these numbers aren't an abnormality, I ran the numbers since the inception of BTC.
-In a given week, there is a 32% chance that BTC can go up or down by 18% or more and a 5% chance that it can go up or down by 38% or more

What about a bi-weekly, or even a monthly contract?
-In a given month, there is a 32% chance that BTC can go up or down by 43% and a 5% chance that it can go up or down by 87%
---
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Goomboo
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June 03, 2012, 05:41:53 AM
 #102


I'm about to just let this go, but here's one more shot.

A 1BTC (or better, no min) lot size is not to make an expected return of 5 USD cents. It is to make some amount of bitcoins which many of us expect will be very valuable in the future.

Low minimums also allow users to get familiar with options and your site without large risk or a large amount of funds tied up.

Reducing to 1BTC min also enables 9BTC and 15BTC. I expect it will be quite some time before that amount of liquidity will not be of any use to you.

@OPX
I know we agreed to agree to disagree, but really this is another arbitrary limitation that not only divides the market into however many contract sizes you have, but also limits free trade.

You are an exchange that limits trade...you're violating your definition / shooting yourself in the foot...and I'm not the only one pointing it out.

"But what about my commission"
-Make it based on the notional value of a trade (if you go back and look at my earlier posts, I didn't point it out, but you end up making more money that way - you offer the ability for people to gain leveraged price exposure to BTC at a fraction of the cost of Mt. Gox)

Frankly, I suggest you don't open on Monday but work with your customer base to make something awesome.
BitcoinOPX
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June 03, 2012, 05:00:39 PM
 #103

Thanks everyone for all the great feedback!

I'll be off the board today getting everything ready for launch. Remaining feedback will be taken into consideration but I won't have time to reply.

I hope everyone will give us a look and a try tomorrow!  Smiley
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June 04, 2012, 04:20:43 PM
 #104

Update: We are now open!

A big thank you to everyone who helped us during Beta testing. Feedback resulted in exciting changes including 24 hour 7 day trading, and formula based escrow requirements to back options. Please see our updated How it Works page for details.

Congratulations to winner Ichthyo, who sent in the most useful bug information. Ichthyo will be sent a 10 BTC prize. Please post your wallet address or reply to the PM I'll send you  Smiley

Happy trading everyone!
Ichthyo
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June 05, 2012, 04:24:21 AM
 #105

A big thank you to everyone who helped us during Beta testing.
Congratulations to winner Ichthyo, who sent in the most useful bug information.

what a nice surprise  Grin

Anyway, let's take the opportunity to thank all the people involded in the creation of BitcoinOPX.
For sure this is a valuable addition to the world of Bitcoin. Featuring a nice mix of a well known proven finnancial instrument made available in a novel and interesting flavour. Special thanks for this public beta, and for listening to your prospective users and working in several proposals and improvements so quickly.

-- Ichthyo


Andrew Vorobyov
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July 24, 2012, 05:24:18 PM
 #106

Is your site working? I don't see any quotes for options

BitcoinOPX
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July 25, 2012, 01:14:10 AM
 #107

Is your site working? I don't see any quotes for options

Yes, the site is working, but lacking activity for now. Bitcoin is a niche community and people readily comfortable with jumping in and trading complex options to their advantage seems limited.

However, we're now working on establishing BTC <-> USD currency exchange using MoneyPaks which may help with traffic. That might spill over into options trading too. We're ready to grow as the Bitcoin economy grows.
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July 25, 2012, 01:44:32 AM
 #108

Is your site working? I don't see any quotes for options

Yes, the site is working, but lacking activity for now. Bitcoin is a niche community and people readily comfortable with jumping in and trading complex options to their advantage seems limited.

However, we're now working on establishing BTC <-> USD currency exchange using MoneyPaks which may help with traffic. That might spill over into options trading too. We're ready to grow as the Bitcoin economy grows.

i didn't know about this site till today

I'm trying to wrap my head around it, trying to figure out how to go long / short

maybe you could expand the How it Works section and really dumb it down  ( like what is strike price? )

give me an example of a bullish & bearish option

BkkCoins
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July 25, 2012, 03:16:44 AM
 #109

I just heard of this now when this post came back to top.

I had a look thru several "Trade" screens but couldn't find any options to trade.

Maybe, it would be useful to have a "ShowAllOpen" button that doesn't show just one strike date/contract size/type but lists any and all options that are actually out there. This may help with people finding something they can trade.

I was thinking about loading funds to create some options but past Bitcoin trading sites have had such a poor track record of keeping customer funds safe that I really feel it would be yet another risky venture.

BkkCoins
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July 25, 2012, 03:31:28 AM
 #110

Is your site working? I don't see any quotes for options

Yes, the site is working, but lacking activity for now. Bitcoin is a niche community and people readily comfortable with jumping in and trading complex options to their advantage seems limited.

However, we're now working on establishing BTC <-> USD currency exchange using MoneyPaks which may help with traffic. That might spill over into options trading too. We're ready to grow as the Bitcoin economy grows.

i didn't know about this site till today

I'm trying to wrap my head around it, trying to figure out how to go long / short

maybe you could expand the How it Works section and really dumb it down  ( like what is strike price? )

give me an example of a bullish & bearish option

Options trading can get very complex, though I doubt the opportunity for that yet with bitcoins. There are several primers on the net via google but I'll give a few examples here to help out (pulled from my memory as it's been years since I did any option trading on CBOE).

If you're bullish on Bitcoin you might buy a CALL option. This gives you the right to buy at a certain price ("strike price"). So if you think it'll be higher next week/month/year you buy a CALL at a price favorable to you, like todays price. Later when it matures you can lock in the price and buy them at the strike price. Your profit being the difference between market (on that date) and strike prices.

If you're bearish you might create and sell that CALL above and hope to profit when the price is below strike as the option holder will not be able to exercise it and hence your sell premium is profit.

Or, also if bearish you might buy a PUT option. That gives you the right to sell at a certain "strike" price. So if you think BTC next week/month/year will be lower then you'd buy a PUT allowing you to sell your BTC at the todays (or whatever available contract) price (even though the market price has gone lower).

Likewise, if you're bullish you may want to create and sell PUT contracts into the market hoping they'll all expire worthless when the market price rises.

In real life options are often used as only part of more complex trades. For example, someone opening a new trading exchange needs to seed his wallet with 10000 bitcoin but he doesn't want to take on the risk that bitcoin may drop over the next 6 months. So he buys/sells option contracts to protect that position. If the price of bitcoin over the next 6 months varies drastically he can balance his loss with a profit in the option contracts. Options like this are used as insurance.

Many more ways to use them exist but these are some basic ones. And of course the option market needs to have some real liquidity to be useful in real life.

adamstgBit
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July 25, 2012, 04:05:16 AM
 #111

Is your site working? I don't see any quotes for options

Yes, the site is working, but lacking activity for now. Bitcoin is a niche community and people readily comfortable with jumping in and trading complex options to their advantage seems limited.

However, we're now working on establishing BTC <-> USD currency exchange using MoneyPaks which may help with traffic. That might spill over into options trading too. We're ready to grow as the Bitcoin economy grows.

i didn't know about this site till today

I'm trying to wrap my head around it, trying to figure out how to go long / short

maybe you could expand the How it Works section and really dumb it down  ( like what is strike price? )

give me an example of a bullish & bearish option

Options trading can get very complex, though I doubt the opportunity for that yet with bitcoins. There are several primers on the net via google but I'll give a few examples here to help out (pulled from my memory as it's been years since I did any option trading on CBOE).

If you're bullish on Bitcoin you might buy a CALL option. This gives you the right to buy at a certain price ("strike price"). So if you think it'll be higher next week/month/year you buy a CALL at a price favorable to you, like todays price. Later when it matures you can lock in the price and buy them at the strike price. Your profit being the difference between market (on that date) and strike prices.

If you're bearish you might create and sell that CALL above and hope to profit when the price is below strike as the option holder will not be able to exercise it and hence your sell premium is profit.

Or, also if bearish you might buy a PUT option. That gives you the right to sell at a certain "strike" price. So if you think BTC next week/month/year will be lower then you'd buy a PUT allowing you to sell your BTC at the todays (or whatever available contract) price (even though the market price has gone lower).

Likewise, if you're bullish you may want to create and sell PUT contracts into the market hoping they'll all expire worthless when the market price rises.

In real life options are often used as only part of more complex trades. For example, someone opening a new trading exchange needs to seed his wallet with 10000 bitcoin but he doesn't want to take on the risk that bitcoin may drop over the next 6 months. So he buys/sells option contracts to protect that position. If the price of bitcoin over the next 6 months varies drastically he can balance his loss with a profit in the option contracts. Options like this are used as insurance.

Many more ways to use them exist but these are some basic ones.

thank you, this really helps

I just heard of this now when this post came back to top.

I had a look thru several "Trade" screens but couldn't find any options to trade.

Maybe, it would be useful to have a "ShowAllOpen" button that doesn't show just one strike date/contract size/type but lists any and all options that are actually out there. This may help with people finding something they can trade.

I was thinking about loading funds to create some options but past Bitcoin trading sites have had such a poor track record of keeping customer funds safe that I really feel it would be yet another risky venture.

Well, at least the owner of this site acknowledges the need for top security
I'm going to throw in a few bitcoins later, and sell a CALL, to protect myself from bitcoin going down

but say i sell a : CALL - 1 BTC - strike price 10 - next week
and price at the end of the week is 11$
do i owe the buyer of the option 1$ or 0.1BTC ?

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July 25, 2012, 04:33:48 AM
 #112

but say i sell a : CALL - 1 BTC - strike price 10 - next week
and price at the end of the week is 11$
do i owe the buyer of the option 1$ or 0.1BTC ?
You're giving the buyer the right to buy that 1 BTC for $10 next week. IF the price next week is $11 then I believe the OPX settlement process would take $1 from your escrow holding and credit the buyers account, and the option expires. From my reading of the site info it doesn't actually exercise the options but calculates what the price difference would be and makes the adjustment.

Of course, you sold the option for some price so your loss would be $1 minus how much you sold the option for.

Pricing options is pretty tricky stuff and from what I recall there are pricing calculators online that can take into account volatility and estimate what an option should cost. They use The Black-Scholes equation which may not always be appropriate. For Bitcoin the volatility must be pretty high so I would expect options to be quite expensive. ie. The person who buys your CALL option should have to pay quite a bit for it as there's a fairly high chance that it will payout.

The higher the price goes next week the more you lose. Either way you keep the premium (what you sold the CALL for).

---- edit added later ---

A Black-Scholes calculator may help with setting an option price but you need an estimate of volatility to be able to use one. According to the wikipedia a quick (not so accurate) way is to make note of the prices changes over recent days and multiply that out to a full year (as the equations take annualized values). So if BTC has been moving about $.50 each day then 0.5/8.5 is about 5.8%. (Since there are 365 trading days for bitcoin (not 252 like CBOE), I guess the multiplier would be 19 not 16). So a rough estimate for recent BTC is 19*5.8% = 110%

When I place that into the "Trading Today" calculator I get a CALL price of $0.11 and a PUT price of $1.54 (strike $10, underlying $8.56, 7 days, 110% vol., 3% int.)

adamstgBit
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July 25, 2012, 05:37:43 AM
 #113

but say i sell a : CALL - 1 BTC - strike price 10 - next week
and price at the end of the week is 11$
do i owe the buyer of the option 1$ or 0.1BTC ?
You're giving the buyer the right to buy that 1 BTC for $10 next week. IF the price next week is $11 then I believe the OPX settlement process would take $1 from your escrow holding and credit the buyers account, and the option expires. From my reading of the site info it doesn't actually exercise the options but calculates what the price difference would be and makes the adjustment.

Of course, you sold the option for some price so your loss would be $1 minus how much you sold the option for.

Pricing options is pretty tricky stuff and from what I recall there are pricing calculators online that can take into account volatility and estimate what an option should cost. They use The Black-Scholes equation which may not always be appropriate. For Bitcoin the volatility must be pretty high so I would expect options to be quite expensive. ie. The person who buys your CALL option should have to pay quite a bit for it as there's a fairly high chance that it will payout.

The higher the price goes next week the more you lose. Either way you keep the premium (what you sold the CALL for).

---- edit added later ---

A Black-Scholes calculator may help with setting an option price but you need an estimate of volatility to be able to use one. According to the wikipedia a quick (not so accurate) way is to make note of the prices changes over recent days and multiply that out to a full year (as the equations take annualized values). So if BTC has been moving about $.50 each day then 0.5/8.5 is about 5.8%. (Since there are 365 trading days for bitcoin (not 252 like CBOE), I guess the multiplier would be 19 not 16). So a rough estimate for recent BTC is 19*5.8% = 110%

When I place that into the "Trading Today" calculator I get a CALL price of $0.11 and a PUT price of $1.54 (strike $10, underlying $8.56, 7 days, 110% vol., 3% int.)

cool thank you, its starting to make sense... i think

I guess i could profit by, buying a bitcoin @ 8.50 and selling a CALL with a strict price of 9$

that way if the bitcoin price shoots up, so dose the value of the bitcoin i bought, so my loss in managed
and if the bitcoin price drops, at least i make some profit on my CALL

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July 25, 2012, 05:58:51 AM
 #114

cool thank you, its starting to make sense... i think

I guess i could profit by, buying a bitcoin @ 8.50 and selling a CALL with a strict price of 9$

that way if the bitcoin price shoots up, so dose the value of the bitcoin i bought, so my loss in managed
and if the bitcoin price drops, at least i make some profit on my CALL
Whether that's a good trade depends on what you can sell the CALL for. In essence you're limiting your upside profit on the BTC in exchange for getting the CALL premium. If you believe BTC has a modest/weak upward trajectory then that's likely a decent "bonus" on just holding the BTC. But it doesn't limit your loss. Remember a CALL is the right to buy but does not imply "must buy". If BTC prices drops below $9 the CALL expires worthless but you still lose if BTC price drops below your buy in price (minus the premium you made too).

(Someone who is highly bullish on BTC would buy your CALL hoping that BTC price rockets to much more than $9 because this allows them to buy in with much less capital, ie. leverage). For the price of the CALL he gets all the upside from $9 up to whatever price it hits.

A more typical stance is to limit your downside (loss) on your BTC holdings. So say you buy 1 BTC at 8.50 and then buy a PUT at $8. This way no matter how low BTC goes you can still get $8 for yours and limit your loss. ie. you HEDGE your BTC position. In this position you aren't limiting your upside so if BTC takes off you will still fully benefit.

The problem, of course, is that you likely cannot buy that PUT in the market. There is practically zero open interest anywhere. Which is a shame as options could be very useful for bitcoiners if they'd learn how to use them and get into it.

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July 25, 2012, 08:14:58 AM
 #115

Yes, the site is working, but lacking activity for now. Bitcoin is a niche community and people readily comfortable with jumping in and trading complex options to their advantage seems limited.

However, we're now working on establishing BTC <-> USD currency exchange using MoneyPaks which may help with traffic. That might spill over into options trading too. We're ready to grow as the Bitcoin economy grows.

Why you are not market making?

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July 25, 2012, 10:46:46 AM
 #116

IMO: There are too many choices for the average user. Have a featured set of options each month with free trading for traders to see the potential it could add to their bitcoin portfolio.

Example: Offer the Aug 31 $8 call option on 1 BTC for free. Have writers put up 1 BTC as collateral and collect a small premium.

Is there an API for market makers?

good judgment comes from experience, and experience comes from bad judgment
BitcoinOPX
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July 25, 2012, 10:57:29 PM
 #117

i didn't know about this site till today

I'm trying to wrap my head around it, trying to figure out how to go long / short

maybe you could expand the How it Works section and really dumb it down  ( like what is strike price? )

give me an example of a bullish & bearish option

@adamstgBit: that's a good idea. We'll look at adding a better overview of trading options. Smiley
____________

I just heard of this now when this post came back to top.

I had a look thru several "Trade" screens but couldn't find any options to trade.

Maybe, it would be useful to have a "ShowAllOpen" button that doesn't show just one strike date/contract size/type but lists any and all options that are actually out there. This may help with people finding something they can trade.

I was thinking about loading funds to create some options but past Bitcoin trading sites have had such a poor track record of keeping customer funds safe that I really feel it would be yet another risky venture.

@BkkCoins: Adding a "Show All Open" button for options is a great idea, and we'll add it, thanks! Smiley

Regarding keeping customer funds safe we're aware of the poor track record due to hacking. For this reason we don't store any funds on the site at all. Even if our site is completely compromised no funds could be moved. Also, every withdrawal is approved manually, and we require email confirmation beforehand.

____________

but say i sell a : CALL - 1 BTC - strike price 10 - next week
and price at the end of the week is 11$
do i owe the buyer of the option 1$ or 0.1BTC ?
You're giving the buyer the right to buy that 1 BTC for $10 next week. IF the price next week is $11 then I believe the OPX settlement process would take $1 from your escrow holding and credit the buyers account, and the option expires. From my reading of the site info it doesn't actually exercise the options but calculates what the price difference would be and makes the adjustment.

@adamstgBit: you would owe $1.00 in that situation, the difference between the contract strike price and actual price at maturity. If you owned the bitcoin as the option writer you could sell it on Mt.Gox at the final price to cover how much you owed. That's known as "writing a covered call". @BkkCoins is correct that we exercise options as contracts for difference which has the advantage that traders don't have to own the underlying asset. This is how we'e able to allow options trading currently on gold, silver, oil, and stock prices as well as bitcoins. Smiley

______________

Hi,

I am an experienced options trader in the real world and I am interested in this. However, I will have a lot of trust issues with options based on bitcoin and with all the recent scams of other exchanges, can you please reveal the identity of all the founders when you open? If you do that, I'd consider investing more, otherwise, it'll just be limited to probably 10 BTC for fun. Why trade options here when you can earn more in real life?

Regards,

@JeanSergeBaptise: regarding our anonymity please see here:

https://bitcointalk.org/index.php?topic=84092.msg935881#msg935881

We've been running almost 2 months now with no issues, and will continue working to build trust. Of course, please feel free to only use amounts you are comfortable with.

________________

Why you are not market making?

@Andrew Vorobyov: we might do that, but for now we're still focused on getting a good trading experience set up.

________________

IMO: There are too many choices for the average user. Have a featured set of options each month with free trading for traders to see the potential it could add to their bitcoin portfolio.

Example: Offer the Aug 31 $8 call option on 1 BTC for free. Have writers put up 1 BTC as collateral and collect a small premium.

Is there an API for market makers?

@TTBit: I think you're right about having too many choices for now. We wanted to build out a robust trading platform, but it may be better to scale things back to be very simple, with limited featured options like you suggest, to start off. Thanks! Smiley

We don't have any plans at this time to add an API for market makers.
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