[ANN] Trade Bitcoin Options - BitcoinOPX.com [NOW OPEN]

[dree12]

Transactions can be issued for a date in the past:

Code:

5/28/12 

Apr 1 2009 $-3.3 CALL 10

Buy 1 @ $1.00 Limit


Open

GFD

Cancel

Strike price can still be negative (is this intended?).

Edit: I think some bounds checking would help for the strike price:

Code:

5/28/12 

Dec 13 1901 $-3.3e231321321 CALL 10

Buy 1 @ $1.00 Limit


Open

GFD

Cancel

Also, the withdraw options look like they may be vulernable to CSRF attacks (but considering the diligence your website has on all else, there's probably already a confirmation page). Just thought I'd let you know, in case.

[BitcoinOPX]

Transactions can be issued for a date in the past:

Code:

5/28/12 

Apr 1 2009 $-3.3 CALL 10

Buy 1 @ $1.00 Limit


Open

GFD

Cancel

Strike price can still be negative (is this intended?).

Edit: I think some bounds checking would help for the strike price:

Code:

5/28/12 

Dec 13 1901 $-3.3e231321321 CALL 10

Buy 1 @ $1.00 Limit


Open

GFD

Cancel

Also, the withdraw options look like they may be vulernable to CSRF attacks (but considering the diligence your website has on all else, there's probably already a confirmation page). Just thought I'd let you know, in case.

Thanks, working to fix that. The withdraw options are not vulnerable to CSRF. They are not operational during testing. CSRF attacks have been screened for user actions.

[Ichthyo]

....Moreover, starting with the second such option, the link sell to open dosn't disapear after being used.

...
You would "sell to open" each of the option contracts you created separately. Theoretically they could be grouped for convenience, and that function may be added. Of course, you could also just adjust the quantity of the sell order you placed for the same symbol.

Sorry, maybe I've failed to state the problem clearly.

When you create a new option, you get a link "sell to open". You can click that and get the form fields for the order pre-filled properly. Especially in this case, most form fields are gradey, i.e. you can't edit the values. Especially, you can't change the quantiy. All you can do is to fill in your limit price. After you've placed this order, the link "sell to open" is gone. All fine thus far.

But now, if there are multiple options with the same symbol, (i.e. either you created multiple options or you just re-played that post page request creating the first order), then the link "sell to open" doesn't go away, after you've placed your order. You could click that link again, and get the confirmation page, without a warning. Basically this way you can create more sell orders then you've created options to sell. While I take it that the system won't match such orders, such behavour is confusing at least. IMHO there should be a bounds check on the quantity, or do you deliberately want to allow people placing phantom orders which aren't backed?

--Ichthyo

[BitcoinOPX]

....Moreover, starting with the second such option, the link sell to open dosn't disapear after being used.

...
You would "sell to open" each of the option contracts you created separately. Theoretically they could be grouped for convenience, and that function may be added. Of course, you could also just adjust the quantity of the sell order you placed for the same symbol.

Sorry, maybe I've failed to state the problem clearly.

When you create a new option, you get a link "sell to open". You can click that and get the form fields for the order pre-filled properly. Especially in this case, most form fields are gradey, i.e. you can't edit the values. Especially, you can't change the quantiy. All you can do is to fill in your limit price. After you've placed this order, the link "sell to open" is gone. All fine thus far.

But now, if there are multiple options with the same symbol, (i.e. either you created multiple options or you just re-played that post page request creating the first order), then the link "sell to open" doesn't go away, after you've placed your order. You could click that link again, and get the confirmation page, without a warning. Basically this way you can create more sell orders then you've created options to sell. While I take it that the system won't match such orders, such behavour is confusing at least. IMHO there should be a bounds check on the quantity, or do you deliberately want to allow people placing phantom orders which aren't backed?

--Ichthyo

That's correct. The system won't match such orders. This is similar to an earlier question about being allowed to place an order for more money than in your account. The system currently trusts the user to intend the action they take. It simply won't carry out the action until the required items are in place. There should probably be a warning notice given, though.

[dooglus]

We take security seriously.

[...]

• We use secure password management. Passwords are never emailed, and are handled with the highest level of security. Users don't choose their own passwords, which can be weak or unlock their other accounts. Instead strong passwords are assigned, then salted and hashed.

The password you gave me when I signed up was only 9 characters long.  I tried to change it to something much longer, but it won't let me.  Instead it just makes up new short passwords.  The most recent one it gave me was only 8 characters long.

I heard a rumour that some people in the Bitcoin community have serious hardware capable of brute forcing hashes remarkably quickly, and so would like to be able to generate my own secure password.

[dooglus]

I find it hard to distinguish between regular text and links on the FAQ page:



"this short description" is a link, but looks very much like the "You can read" text.  Is the colour slightly different?

[dooglus]

This paragraph of the FAQ:



says "in this forum thread".  Is that meant to be a link?

[dooglus]

However, put options, with emphasis on USD sale price, may become under covered as exchange rates change. This is unavoidable because our escrow service only accepts bitcoins, and default risk can be factored into pricing put options.

Can't you just insist that the creator of the put option has sufficient USD in their account to cover the contact, and hold it in reserve for the duration of the contract.  In effect, acting as your own escrow service, at least until you find an escrow service that meets your requirements.

[BitcoinOPX]

Thanks for all the great questions, and helpful feedback everyone!

I'll be off the board today looking into much of this feedback, and will return to answer replies.

[BitcoinOPX]

Greetings everyone!

After working through much of the feedback given I have big changes to announce.

Contracts for Difference

Most notably options are now structured as contracts for difference. This allows several things. First, both call and put options are now covered by escrow (up to $150). Also, traders don't need to own the underlying asset (bitcoins). We have changed contract size to 100 or 1,000 BTC. Below is the example on the updated How it Works page.

Bob creates a CALL 1000 option with strike price of $5.25. The current bitcoin market price is $5.10. Bob doesn't think the price will rise by maturity, and places the option on sale for $20. He pays $150 into escrow to cover the option.

Suzy thinks the price will rise by maturity so she buys the option. At maturity the price is $5.42, which is $.17 above the strike price. This means Bob would mathematically owe Suzy 1,000 x $.17 = $170. However, the maximum payout is $150 which is the amount Bob pays.

Please let me know what you think! I'll also respond to earlier questions.

[REF]

-Id like to see 2 factor auth added. preferable something free for users, google auth, or anything else you find suitable would be good.

-I dont like my password being set by you. Id rather set my own password phrase. I dont even like being required to use a number or symbol but I would be fine with that if we can set our own. With you setting our passwords many people are going to be storing there password in notepad or some easy to access unencrypted file for ease of access.

[dree12]

-Id like to see 2 factor auth added. preferable something free for users, google auth, or anything else you find suitable would be good.

-I dont like my password being set by you. Id rather set my own password phrase. I dont even like being required to use a number or symbol but I would be fine with that if we can set our own. With you setting our passwords many people are going to be storing there password in notepad or some easy to access unencrypted file for ease of access.

That isn't a problem; no malware is going to waste time trying to log in with every file on a computer.

[Ichthyo]

Most notably options are now structured as contracts for difference.
...
Please let me know what you think! I'll also respond to earlier questions.

Hello BitcoinOPX,

do you still intend to offer the classical type of option too?
While this contract for difference option kind looks like an interesing think in itself, especially because of the capped risk, I still think that classical options are a sorely needed instrument for the bitcoin universe.

-- Ichthyo

[Ichthyo]

Bob creates a CALL 1000 option with strike price of $5.25. The current bitcoin market price is $5.10. Bob doesn't think the price will rise by maturity, and places the option on sale for $20. He pays $150 into escrow to cover the option.

Suzy thinks the price will rise by maturity so she buys the option. At maturity the price is $5.42, which is $.17 above the strike price. This means Bob would mathematically owe Suzy 1,000 x $.17 = $170. However, the maximum payout is $150 which is the amount Bob pays.

If optoins are now payed as CFD, it seems that everything in this deal is denoted in USD. Optons are also traded in USD. Is there any reason to have a BTC balance on your platform then? It seems that the only think which can happen is to move USD amounts.

[REF]

-Id like to see 2 factor auth added. preferable something free for users, google auth, or anything else you find suitable would be good.

-I dont like my password being set by you. Id rather set my own password phrase. I dont even like being required to use a number or symbol but I would be fine with that if we can set our own. With you setting our passwords many people are going to be storing there password in notepad or some easy to access unencrypted file for ease of access.

That isn't a problem; no malware is going to waste time trying to log in with every file on a computer.

Its still not ideal.

[BitcoinOPX]

Hey, thanks for the questions.

First on the subject of secure passwords:

@dooglus: the passwords we assign are extremely secure. What you are talking about is password cracking using brute force. That is not possible when authentication attempts are limited and/or time-delayed. We limit login attempts to 7 tries before locking the user out. That's impossible to crack by guessing. If you're interested below is a great article explaining secure vs. insecure passwords:

http://www.baekdal.com/insights/password-security-usability

@REF: we assign passwords to ensure they are both strong, and also don't unlock other user accounts. Even if users picked their own password but had malware install a keylogger their password would be compromised. On that note you do have a point about two factor authentication. This is one reason we require a security question/answer pair upon signup. It gives us another piece of evidence to identify users. We are conscious of the balance between great security, but with practical use. I do think it's a good idea and worth the relative inconvenience to add the second factor of user's security question for login and will add it.

@Ichthyo: we don't intend to offer the classical options at this time. We think users will buy, hold, and sell bitcoins directly with maximum flexibility as opposed to having them locked away in escrow.

You are right about less need for a BTC balance to be displayed. That will depend more on our plans to offer BTC/USD conversion service for convenience.

[Goomboo]

Suggestions:

- Allow the full option chain to be displayed.  My thought is basically that you need to be able to see the entire market for a specific maturity.  If you are worried about the list being too long, consider creating a "full list" button that allows you to see the entire list of puts and calls for a specific date.  It is simply too much time to scroll through the pages to see where other traders are across the board.

- Allow smaller lot sizes.  Most people won't put that quantity of currency at risk casually - if things go against them, they'd like to exit their option.  This requires liquidity and liquidity will only come to this if there are a few hundred traders participating rather than a dozen.  I'd suggest allowing position sizes as low as 1 bitcoin - this will fill up the order book and generate volume.  (Edit your commission appropriately ~ .065 cents / BTC...better yet, make it a percentage ~ .01% of the notional value of your position)

- Include a time and sales which allows traders to see the trade history - make it live if possible - I'd suggest working with Clark Moody (bitcoin.clarkmoody.com) to create something similar.

Thank you for reading, I wish you the best in your endeavors.

Goomboo

[Goomboo]

One more thing...

- I would be absolutely specific on how you calculate the closing price against which the options settle.  The reason is because it is easy to manipulate the price by 1-2% these days.  With the bid-ask spread around 5 cents, a single trade can make the closing price increase or decrease by a percent.  If a trader has a large position on and is close to the money, he can push the price around so that it settles in his favor, etc.  An example of clarity - I take the average of the closing prices for each hour.

- I'd just like to reiterate that it really is important to be able to see the entire market for a specific date in one screen.  I simply can't trade it if I can't see in one glance where the entire option chain is for a specific maturity.  Traders look to see what the market is thinking and weigh this against their view...if I can't see the market easily, I can't trade.

-I would suggest not capping the profit / loss on a trade.  This $150 is an arbitrary number and has nothing to do with the market price.  You are seriously limiting your customer base by capping their maximum profit potential.  One of the main allures for option traders is that the risk / reward ratio is beneficial.  By setting a cap on their reward, you are alienating a lot of potential customers.  Another problem with this $150 figure is this - does $150 make sense if BTC is at $100 / BTC?  See where I'm going with this - it's not a versatile figure AND it limits your audience.  If you limit your audience, you don't get liquidity.  If you don't get liquidity...etc.  I suggest that you have a margin requirement instead equal to ~20% of your notional position with the understanding that it is possible to have revenue shortfalls.

I really am excited about this product and the idea.  I plan on using it if it becomes a little more trader friendly.

Thanks,

Goomboo

[BitcoinOPX]

@Goomboo: regarding the ability to show the full option chain, that's a great idea and it will be added.

- Regarding lot sizes we chose 100 and 1000 because of typical market conditions. Right now volatility has largely subsided. People who want to trade conservatively can choose the 100 size. Plugging 100 into the trade example above gives the following values:

Bob creates a CALL 100 option with strike price of $5.25. The current bitcoin market price is $5.10. Bob doesn't think the price will rise by maturity, and places the option on sale for $2. He pays $150 into escrow to cover the option.

Suzy thinks the price will rise by maturity so she buys the option. At maturity the price is $5.42, which is $.17 above the strike price. This means Bob would mathematically owe Suzy 100 x $.17 = $17.

As you can see the dollar amounts suddenly become very small. If volatility returns to be measured in dollars rather than cents, such as if the price per BTC is $100 then we may add in a third smaller contract size of 10. Please keep in mind a user can create, buy or sell more or less of the same option to adjust their profit potential. We are trying to keep complexity down for what users have to learn and remember.

- Regarding an ability to see trade history that was mentioned in this thread earlier. That's not typically information available with options traditionally. However, we may consider adding it.

- Regarding how we determine the closing price we are very specific. It is the 24 weighted average at Maturity taken from the largest operational exchange with the highest BTC/USD volume (typically Mt.Gox). By using the weighted average small market moves are not a factor.

- Regarding the $150 cap on payout there are several things to consider. First, remember we want to keep things as simple as possible. Second, any trader can adjust their profit potential by buying more or less of the same option, or picking a different strike price. If the BTC price reaches $100 we may make some adjustments, but there will be many other things going on if that happens as well.

[Goomboo]

Thanks for getting back to me.

Here's my issues,

"Right now volatility has largely subsided"
-Options are a method of trading volatility - after all, the largest component of the fair value of an option is volatility.  If you base your model on this current market environment, you've got a problem - things change and trying to manually change on the fly is a recipe for disaster.

"This means that Bob would mathematically..."
-You have a serious issue with the premium.  Suzy bought the option for $2 per BTC x 100 BTC = $200 [an insanely high price by the way].  This $200 goes to Bob, the seller of the call option.  Bob at most can lose $150 on the option due to the nature of your platform.  Bob actually made $50 regardless of what the market does!  I think you mean the $2 is actually the price for the entire 100 BTC, but that isn't how options (on listed securities) are quoted and I seriously suggest sticking with industry standards.

Additionally:

"The market closes at..."
-Why does the market close?  There is no feasible reason for a market to close.  Are you telling me that if it is night time and I want to trade, I can't?  This makes no sense.  While typing these comments, I'm trading the currency markets...

I'm noticing a trend of your product limiting itself.  Nearly every aspect of the product has an arbitrary parameter which makes this very difficult to use.  $150, market hours, lot sizing...there really is no reason for this.  In your attempt to make it easy on the new guy, you are alienating those of us who actually trade.

I like the idea, but I think you need to eliminate all these restrictions - the more parameters, the more difficult.  In fact, I'm noticing that almost every single one of my criticisms is in regard to a parameter that limits your customer needlessly.

Thanks,

Goomboo