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Author Topic: Miners, You Should Be Earning 7% Fixed Income With Options  (Read 9770 times)
Goomboo
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June 19, 2012, 01:32:18 AM
 #61

Typically option chains show only the best bid/ask, and that is for each call/put at each strike price. Yes, each strike price is an entirely different instrument, but you won't typically find the detailed bids and asks for each instrument. If you know a way to do that I'd love to see it Wink For example, here is the option chain for Google's stock:

Howdy! :p

That's because you're looking at a flat view (level I) of the market.  I'm more familiar with the commodity markets (than equities), so I'll venture a guess that the reason you can only access the level I data is that the exchange requires you to pay some "professional" fee to access it (identical to level II quotes for stocks).

The way to show it (on your exchange) is to have a table show up when you click "trade" next to a quote.  It should show the full bids and offers for the specific instrument at the specific strike and maturity.

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Goomboo
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June 19, 2012, 01:36:53 AM
 #62

Yeah, here's what I mean:

http://www.schwab.com/public/schwab/resource_center/expert_insight/investing_strategies/options/whats_really_going_on_options_market.html
BitcoinOPX
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June 19, 2012, 01:44:54 AM
 #63


Yes, paying fees does generally enable access to more data. But the page you linked still doesn't appear to show depth of market, only real time quotes for best bid/ask, and comparison between the exchanges.
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June 19, 2012, 01:54:01 AM
 #64


Yes, paying fees does generally enable access to to more data. But the page you linked still doesn't appear to show market depth, only real time quotes for best bid/ask, and comparison between the exchanges.

That's what market depth is in the equity markets - a compilation of all executable prices from all eligible market markers sorted by best price.

Equity example:
http://www.realfasttrader.com/daslevelii.gif

That's exactly what you're looking at in the link I sent.

You really need to provide that for each instrument at each strike / maturity.
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June 19, 2012, 01:56:57 AM
 #65


Yes, paying fees does generally enable access to to more data. But the page you linked still doesn't appear to show market depth, only real time quotes for best bid/ask, and comparison between the exchanges.

That's what market depth is in the equity markets - a compilation of all executable prices from all eligible market markers sorted by best price.

Equity example:
http://www.realfasttrader.com/daslevelii.gif

That's exactly what you're looking at in the link I sent.

You really need to provide that for each instrument at each strike / maturity.

But there is only one exchange right now for our instruments, that's us.
Goomboo
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June 19, 2012, 01:59:00 AM
 #66

But there is only one exchange right now for our instruments, that's us.

Yeah...I don't see how we're not connecting on this...instead of exchanges (as in the posted example), you put traders' orders...

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June 19, 2012, 02:01:07 AM
 #67

But there is only one exchange right now for our instruments, that's us.

Yeah...I don't see how we're not connecting on this...instead of exchanges (as in the posted example), you put traders' orders...

bitcoin.clarkmoody.com

We're not connecting because you're talking about two different things. A comparison between exchanges of one instrument is not the same as the orderbook on an exchange for that one instrument.

Edit: I know what you want us to add. As I said we may add it. I'm not against the idea.
Goomboo
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June 19, 2012, 02:08:44 AM
 #68

We're not connecting because you're talking about two different things. A comparison between exchanges of one instrument is not the same as the orderbook on an exchange for that one instrument.

Not true man, but this isn't really worth talking about.  The issue at hand is that you need market depth for each traded instrument.

The equity order book shows the best bids and offers of competing market makers and large players.  If you have direct market access (DMA), then you can place a bid / offer on the book.

http://en.wikipedia.org/wiki/Direct_market_access

In the BTC world, all traders have DMA, so their orders must be on a book that can be seen and interacted with.
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June 19, 2012, 02:15:20 AM
 #69

In the BTC world, all traders have DMA, so their orders must be on a book that can be seen and interacted with.

Ah, now I see what you're talking about. I still don't think it's a fair comparison. When this came up before you said you wanted to see "what the market was thinking". I hardly think the nine best bid/ask orders between nine real world exchanges will give you that.

But, as I said an orderbook on options may be added. It's already in the works for our contract for difference section for Gold, Euros, Stocks etc.
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June 19, 2012, 02:25:11 AM
 #70

In the BTC world, all traders have DMA, so their orders must be on a book that can be seen and interacted with.

Ah, now I see what you're talking about. I still don't think it's a fair comparison. When this came up before you said you wanted to see "what the market was thinking". I hardly think the best bid/ask orders between nine real world exchanges will give you that.

But, as I said an orderbook on options may be added. It's already in the works for our contract for difference section.

I have a lot of reasons for needing it - it is one of the most used tools in active trading.  A significant percentage of professional short-term traders rely almost exclusively on market depth and time of sales.  It shows the positioning of the market as well as the velocity and volume of the market.

Relevant analogies:

-Would you go to a candy store if you only knew the price of one piece of candy and not the whole bag?
-Would you go to a party if you knew that only the most easily persuaded people would be there?
Goomboo
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June 19, 2012, 02:34:56 AM
 #71

I mean this really shouldn't be too hard to do...in fact, if you aren't already doing this, your exchange is broken.

I want to buy the option for $40.  Someone wants it more than me, so they bid $41.  Your webpage now shows $41 as the best bid.

Someone sells to the $41, taking the $41 off the book.  My $40 is now shown again as the best bid.

I just want to see the full depth that your exchange should be storing already.
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June 19, 2012, 02:38:40 AM
 #72

@Goomboo: Yes, I know. Can I get back to the tread topic now?  Wink
Goomboo
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June 19, 2012, 02:41:44 AM
 #73

@Goomboo: Yes, I know. Can I get back to the tread topic now?  Wink

Sounds good.
DutchBrat
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June 19, 2012, 07:34:01 AM
 #74


I'm still wondering how you are going to handle counter-party risk ?

This is the trickiest thing to solve, even in the real world  Tongue It's even harder due to bitcoin favoring anonymity.

First we backed options with bitcoins, but I thought that was too burdensome. A contract for difference model is far more flexible. For example, @Brunic says he is currently mining the 300 coins he will sell in the future, so he couldn't put them up for collateral beforehand anyway.

In our Beta feedback thread someone suggested using a formula to calculate escrow, so that's the direction we went. However, I'm now thinking that may be too complex and inadequate for coverage. I'm thinking to simply require escrow to cover a 50% price move.

That gives traders more solid payment assurance. They can feel safe buying with the potential to make up to a 50% difference in price.

In the example above it would mean, for example, putting up  $6.50 x 50% = $3.25 then multiplied by 300 coins = $975 into escrow.

That's a lot more burdensome on the option writer, but only half as burdensome as putting up the coins directly. And it gives plenty of upside room to speculators. The price could move to $9.75 and they would know they would be paid.


I do agree you have to find a balance somewhere between 0% and 100%, so 50% should be a good option... I would suggest you then place a request for further collateral when 75% - 80% of the current collateral is in use because of a price rise (calls) or price fall (puts). That would give you ample time to close the position should someone renege on their obligations, with the least damage to the counterparty

Looking forward to see this get up and running !
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June 19, 2012, 01:10:40 PM
 #75

I mean this really shouldn't be too hard to do...in fact, if you aren't already doing this, your exchange is broken.
I want to buy the option for $40.  Someone wants it more than me, so they bid $41.  Your webpage now shows $41 as the best bid.
Someone sells to the $41, taking the $41 off the book.  My $40 is now shown again as the best bid.
I just want to see the full depth that your exchange should be storing already.

I guess you're talking about an order book view, like this: https://bitcointalk.org/index.php?topic=50817.0 (see screenshot in the first post)?

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
BitcoinOPX
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June 19, 2012, 06:36:41 PM
 #76

I do agree you have to find a balance somewhere between 0% and 100%, so 50% should be a good option... I would suggest you then place a request for further collateral when 75% - 80% of the current collateral is in use because of a price rise (calls) or price fall (puts). That would give you ample time to close the position should someone renege on their obligations, with the least damage to the counterparty

Looking forward to see this get up and running !

Yes, I think that's the best solution.  Smiley

Additionally, I'm thinking to limit contract terms to 2 months at a time. That will help with both volume and volatility range.

I mean this really shouldn't be too hard to do...in fact, if you aren't already doing this, your exchange is broken.
I want to buy the option for $40.  Someone wants it more than me, so they bid $41.  Your webpage now shows $41 as the best bid.
Someone sells to the $41, taking the $41 off the book.  My $40 is now shown again as the best bid.
I just want to see the full depth that your exchange should be storing already.

I guess you're talking about an order book view, like this: https://bitcointalk.org/index.php?topic=50817.0 (see screenshot in the first post)?

Yes, he wants an orderbook for every option, every strike price. Orderbooks are common on BTC currency exchanges, for example, but not in the real world for options. However, I remember wishing for that information myself when trading options, so I'm in favor or the idea. We will probably add it.
BitcoinOPX
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June 22, 2012, 07:49:59 PM
 #77

Hey everyone, I'm happy to announce exciting new changes!  Smiley

Summary:

- We've expanded options to now include Gold, Silver, Brent Crude futures, shares of Google, Apple, Facebook, and more!
- Option lot size 1 added (all sizes: 1, 10, 100, 1000)
- Trade fee reduced to just $0.25 per contract
- Simplified escrow is now covering a 50% price move for bitcoins, and 5% move for all other assets

The biggest change is our expanded trading to options on the assets above. Additionally, we've added a lot size of just 1 and lowered the trade fee to $0.25 so it's now possible to trade "for fun" too Wink

Please see our updated How it Works page for details.

More features are planned including currency exchange, and a user requested order book view for every option, every strike price. Something else you'd like to see? Please let me know of comments or suggestions you have.

Thanks, and happy trading!

Soros Shorts
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June 22, 2012, 11:42:01 PM
 #78

Yes, he wants an orderbook for every option, every strike price. Orderbooks are common on BTC currency exchanges, for example, but not in the real world for options. However, I remember wishing for that information myself when trading options, so I'm in favor or the idea. We will probably add it.

If the bid/ask can be moved by a small order, you'd want to have an order book (regardless of what the type of security is). Many retail trading platforms do not show depth of market for options because the counterparty is usually a market maker who is able to absorb fairly large orders without significantly moving the bid/ask.
BitcoinOPX
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June 23, 2012, 12:41:16 AM
 #79

Yes, he wants an orderbook for every option, every strike price. Orderbooks are common on BTC currency exchanges, for example, but not in the real world for options. However, I remember wishing for that information myself when trading options, so I'm in favor or the idea. We will probably add it.

If the bid/ask can be moved by a small order, you'd want to have an order book (regardless of what the type of security is). Many retail trading platforms do not show depth of market for options because the counterparty is usually a market maker who is able to absorb fairly large orders without significantly moving the bid/ask.

I'm not sure what you mean by "moved by a small order". When an order is placed if it's the best for the instrument then it is the best shown. Options often represent some larger multiple of the underlying asset, such as 100 company shares in terms of stock options, so even 1 option contract is generally significant. I've sat in front of the screen live trading Google options (a $500 security) and watched stingy traders have a bid/ask war for the equivalent of $5.

However, even if that were the case there is no reason (that I can see) to withhold bid/ask data. I happen to agree with @Goomboo about the information being useful for data analysis purposes.

The market price for retail options, especially longer term ones, is very much affected by perception. Being able to see all bids and asks could be quite useful. As I said I had wished for that information myself.
Stephen Gornick
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June 24, 2012, 02:20:44 AM
 #80

In the example above it would mean, for example, putting up  $6.50 x 50% = $3.25 then multiplied by 300 coins = $975 into escrow.

That's a lot more burdensome on the option writer, but only half as burdensome as putting up the coins directly. And it gives plenty of upside room to speculators. The price could move to $9.75 and they would know they would be paid.


I do agree you have to find a balance somewhere between 0% and 100%, so 50% should be a good option... I would suggest you then place a request for further collateral when 75% - 80% of the current collateral is in use because of a price rise (calls) or price fall (puts). That would give you ample time to close the position should someone renege on their obligations, with the least damage to the counterparty

Looking forward to see this get up and running !


I'm missing something I think.  The higher the strikeprice, the less Bob needs to put up for escrow.

Using your example of Bob creating a CALL 100 option on bitcoins, but let's say the strike price is $9.50 expiring in 4 weeks. Current price is $6.50.

Escrow = ($6.50 x 50%) = $3.25 + $6.50 = $9.25 - $9.50 = -$0.25

Taken literally, Bob can write that call option without having to put up any funds for escrow.

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