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Author Topic: Miners, You Should Be Earning 7% Fixed Income With Options  (Read 9768 times)
BitcoinOPX
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June 24, 2012, 03:03:52 AM
 #81

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.

No you have it right. Smiley

The price wouldn't be expected to move above $9.25 as that would be more than a 50% move. However, there is a $5.00 minimum (there was a How it Works page omission - updated), so that would be $5.00 x 100 coins = $500 required for escrow. Also, once 80% of those funds are in use a margin call is issued which must be met within 24 hours or the option is closed and settled in favor of the holder.

Edit: I replied hastily and made a mistake, the $5 is flat, please see below.
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Stephen Gornick
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June 24, 2012, 03:57:47 AM
 #82

However, there is a $5.00 minimum (there was a How it Works page omission - updated), so that would be $5.00 x 100 coins = $500 required for escrow.

Well, now the example in that page is incorrect, as the $3.00 is below the $5 minimum.

BitcoinOPX
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June 24, 2012, 03:17:05 PM
 #83

However, there is a $5.00 minimum (there was a How it Works page omission - updated), so that would be $5.00 x 100 coins = $500 required for escrow.

Well, now the example in that page is incorrect, as the $3.00 is below the $5 minimum.

You're right, I replied hastily and made a mistake. The $5 is not multiplied by anything, it's flat. So the escrow due would be $5.00.

What's going on here is far out-of-the-money options are not well backed, due to the difficulties of counterparty risk. So in summary, people should not look to make a killing on them as the system isn't set up for that. Traditionally most traded options are in-the-money or close to in-the-money. You do get trading in the cents range on far out-of-the-money positions, but these usually do expire worthless. We will probably add a high risk of default warning message on such orders.
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June 25, 2012, 01:31:54 AM
 #84

Wow, a lot to wade though.

First impression: If the point is to run away with everyone's money, why bother having security that might actually make it harder for stupid people to hand over their money? Better to make it user-friendly, the moeny is gone anyway, whether some third party hacker gets it first or not.

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BitcoinOPX
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June 25, 2012, 04:47:33 PM
 #85

Wow, a lot to wade though.

First impression: If the point is to run away with everyone's money, why bother having security that might actually make it harder for stupid people to hand over their money? Better to make it user-friendly, the moeny is gone anyway, whether some third party hacker gets it first or not.

-MarkM-


LOL

Thanks @markm, you're probably right. I think a good indicator of a scam site is not having resistance to anything. Business logic for the longer term means basing decisions on a bigger picture, not short term aims. We certainly do have a larger picture in mind. Stay tuned... Smiley
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June 25, 2012, 09:04:45 PM
 #86

Hi everyone,

We're working to add currency exchange with a focus on MoneyPaks because these are handy for getting money into and out of bitcoins. MoneyPaks can of course be used to reload prepaid credit cards used for cash at ATMs.



We want to match sellers of BTC (miners) with buyers of BTC who may be new to Bitcoin or otherwise not want to wait for their money to reach an exchange.

Say a miner wants to sell 50 BTC. They would look up the current exchange rate (say $6.00) and list a MP request for $300 in our currency exchange section. Someone looking to buy BTC would just go to a local 7-eleven, CVS etc. and load that amount to a MP.

They would return to our site to accept the offer and submit the MP code.

There are two ways to handle things from here:

Way 1. We need to manually check (or bypass moneypak.com's captcha) that the code is valid and not yet used. We'd then alert the seller the code was valid and we were soon transferring their BTC to the buyer, so they should use the code immediately.

-or-

Way 2. We get the seller's re-loadable prepaid card number upfront, and load the MP code onto it ourselves to verify everything works out ok before transferring the BTC to the buyer.

Either way we act as middleman to facilitate the exchange for hopefully a negligible fee. Moneypaks themselves cost just $5. If we can set things up efficiently this could be one of the fastest and cheapest ways to go from USD to BTC.

Yes, BitInstant is a stellar service which can be used by new people to get money into bitcoin, but this would be even cheaper (and faster?) especially for larger amounts (MP loads up to $500 or $1K at Walmart).

I think way 2 is best, but what do you think? Also, would this be a desired service?



Stephen Gornick
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June 25, 2012, 09:10:26 PM
 #87

Yes, BitInstant is a stellar service which can be used by new people to get money into bitcoin, but this would be even cheaper (and faster?) especially for larger amounts

Are you sure you want to accept traceable USDs for a service like this?

BitcoinOPX
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June 25, 2012, 09:23:22 PM
 #88

Yes, BitInstant is a stellar service which can be used by new people to get money into bitcoin, but this would be even cheaper (and faster?) especially for larger amounts

Are you sure you want to accept traceable USDs for a service like this?

We wouldn't accept any USD. All we do is take in the BTC from the Seller and the MoneyPak code from the Buyer and facilitate the trade. The same thing happens already in the forum's currency exchange section, but without the efficiency of a middleman between the parties.
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June 25, 2012, 09:37:47 PM
 #89

We wouldn't accept any USD. All we do is take in the BTC from the Seller and the MoneyPak code from the Buyer and facilitate the trade. The same thing happens already in the forum's currency exchange section, but without the efficiency of a middleman between the parties.

I'm missing something then.  Is this to enable the ability to deposit funds to BitcoinOPX for trading?    If so, then you carry a history of where those MoneyPak's are spent.  MoneyPaks are exclusively purchased only in the U.S.  BitcoinOPX, um .... , probably shouldn't be accepting funds from the U.S.

With Bitcoins from the blockchain, neither you nor anyone else except the sender really knows which country the funds came from.  With MoneyPaks, you know the exact country the funds came from.

Am I missing something obvious?

BitcoinOPX
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June 25, 2012, 09:49:54 PM
 #90

We wouldn't accept any USD. All we do is take in the BTC from the Seller and the MoneyPak code from the Buyer and facilitate the trade. The same thing happens already in the forum's currency exchange section, but without the efficiency of a middleman between the parties.

I'm missing something then.  Is this to enable the ability to deposit funds to BitcoinOPX for trading?    If so, then you carry a history of where those MoneyPak's are spent.  MoneyPaks are exclusively purchased only in the U.S.  BitcoinOPX, um .... , probably shouldn't be accepting funds from the U.S.

With Bitcoins from the blockchain, neither you nor anyone else except the sender really knows which country the funds came from.  With MoneyPaks, you know the exact country the funds came from.

Am I missing something obvious?

Think of the MoneyPak exchange as a separate service, because that's really what it is. I actually had the idea before BitcoinOPX, so this is sort of combining the sites. However, the added traffic should also help with BitcoinOPX trading.

But as for deposit options we don't plan to accept MoneyPak at this time.
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June 25, 2012, 10:09:47 PM
 #91

We wouldn't accept any USD. All we do is take in the BTC from the Seller and the MoneyPak code from the Buyer and facilitate the trade. The same thing happens already in the forum's currency exchange section, but without the efficiency of a middleman between the parties.

I'm missing something then.  Is this to enable the ability to deposit funds to BitcoinOPX for trading?    If so, then you carry a history of where those MoneyPak's are spent.  MoneyPaks are exclusively purchased only in the U.S.  BitcoinOPX, um .... , probably shouldn't be accepting funds from the U.S.

With Bitcoins from the blockchain, neither you nor anyone else except the sender really knows which country the funds came from.  With MoneyPaks, you know the exact country the funds came from.

Am I missing something obvious?

Think of the MoneyPak exchange as a separate service, because that's really what it is. I actually had the idea before BitcoinOPX, so this is sort of combining the sites. However, the added traffic should also help with BitcoinOPX trading.

But as for deposit options we don't plan to accept MoneyPak at this time.


Do it
Grant
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June 26, 2012, 07:49:18 PM
 #92

You need marketmakers, or else the orderbook liquidity will continue to look like sahara. Most people are victims of psychological manipulation that makes them completely mathematically incompetent to understand elementary school math (vanilla options are just that), unfortunately this includes miners. Their competence is excellent in addition and substraction but they cannot comprehend anything more complicated (such as multiplication, % or division, which is all thats required to understand options really).

Secondly, your site needs security, i myself lost over 100 bitcoins (when they were still trading at above 8$) to bitoption.org because their site vanished together with its owner.

In short, i love options, but im not going to trade any single option unless the exchange seems to be able to offer these 2 things: liquidity, and existence 12 months from now.

At this time, given the past failures (bitoption, bitcoinca etc) you're propably much better off trying to team up with someone such as mtgox.

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June 26, 2012, 09:46:20 PM
 #93

i myself lost over 100 bitcoins (when they were still trading at above 8$) to bitoption.org because their site vanished together with its owner.

In short, i love options, but im not going to trade any single option unless the exchange seems to be able to offer these 2 things: liquidity, and existence 12 months from now.

The site may have discontinued service but the operator most definitely did not vanish.  You might still be able to submit a claim for funds.  PM me if you don't know how to contact them.

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June 27, 2012, 01:31:50 AM
 #94

You need marketmakers, or else the orderbook liquidity will continue to look like sahara. Most people are victims of psychological manipulation that makes them completely mathematically incompetent to understand elementary school math (vanilla options are just that), unfortunately this includes miners. Their competence is excellent in addition and substraction but they cannot comprehend anything more complicated (such as multiplication, % or division, which is all thats required to understand options really).

Secondly, your site needs security, i myself lost over 100 bitcoins (when they were still trading at above 8$) to bitoption.org because their site vanished together with its owner.

In short, i love options, but im not going to trade any single option unless the exchange seems to be able to offer these 2 things: liquidity, and existence 12 months from now.

At this time, given the past failures (bitoption, bitcoinca etc) you're propably much better off trying to team up with someone such as mtgox.

I'm guessing you're joking about miners and math... One could argue Bitcoin is thoroughly about math; if anything it's too mathematical and geeky for quicker mainstream adoption.

As for the current lack of volume (I'm still laughing about the Sahara bit) I think it's to be expected. The main reason to list options is to make money. If it's not readily apparent how to do that then no action will be taken. Something that dawned on me considering Bitcoinica's rapid adoption and success is how straightforward it was: you look at the price and if you think it's going up you buy, otherwise you sell... the site offers leverage either way to magnify your bet, and nobody else need be involved; as long as there is liquidity the order is filled. Simple, effective, and direct to profit (or loss).

Options on the other hand are not so straightforward. It can take a while to get the hang of them, and positions are not opened and closed in a matter of minutes, round-the-clock. Instead, options require a longer term view and more consideration of actions taken. They provide traders with more options and strategies because they are more complex.

Bitcoin is a small niche community, and the subset of people perfectly comfortable with jumping in and trading options must be far smaller.

Also, we've only just added trading other assets. So I think the site will do well given time, but won't have the fast explosion Bitcoinca did. And people are still recovering from that unfortunate loss.

I'm looking longer term and betting on Bitcoin's continued growth. Adding the currency exchange functionality should help with traffic, and possibly trade activity too.

As for security I don't know if you're familiar with the Linode hack, the first time Bitcoinica was hacked, but several other Linode hosted sites were also hacked. In the aftermath one site owner with Linode posted on the forum that he specifically wasn't gloating, but had to say when he heard about the hack he wasn't the least bit concerned. This was because he didn't have funds hosted on Linode. Not a cent could transfer without his manual authorization. I read that and nodded to myself because I knew I would handle things the exact same way. And so I have. Even if our website is completely compromised no funds can be moved because all withdrawals require manual approval.
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July 01, 2012, 04:39:32 AM
 #95

I just gave this a try and when I try to deposit, it's saying my mtgox code could not be redeemed.

Hi - please be sure the redeemable code is USD and try again. We are working on this section for currency exchange between BTC and USD.
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July 01, 2012, 04:10:02 PM
 #96

Ok, I've posted a few as tests, lets hope this takes off. Never played with options before, so chances are good I screwed up somewhere  Grin




That image is hilarious.

If you have any questions please ask Smiley

One of the goals in setting up BitcoinOPX is making options more accessible to people. It can be a hassle getting set up to trade in the real world, even with the advances in web based solutions. And then there are the trade fees. BitcoinOPX is meant to provide people better accessibility, sort of like Bitcoin itself does.
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July 08, 2012, 09:48:37 PM
 #97

I stopped reading this thread. If the password is less than 8 characters, regardless of keyset used, and you give me, a hobbyist, the hash of said password, and I'll give you the password in a few minutes.

That's been fixed, IIRC.

Mining Rig Extraordinaire - the Trenton BPX6806 18-slot PCIe backplane [PICS] Dead project is dead, all hail the coming of the mighty ASIC!
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July 09, 2012, 03:20:27 PM
 #98

I will try to throw out a few bids on some call options, size 100. With the price here at 6.80 on 7/9, I'll pay $15.05 for the right to buy 100 bitcoins from you on 7/27 for $700. Sell the option to me, and you will be credited $15.05. Price stays under $7.1505 and you are better off. After that, you'll need to credit my account the difference.

I think I threw out a good price, but feel free to outbid.

Suggestion: Open up a december 28 2012 option, I would put a bid on a few 100 calls.

good judgment comes from experience, and experience comes from bad judgment
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July 09, 2012, 09:07:14 PM
 #99

I stopped reading this thread. If the password is less than 8 characters, regardless of keyset used, and you give me, a hobbyist, the hash of said password, and I'll give you the password in a few minutes.

That's been fixed, IIRC.

So i should stfu and go back and read the thread? Will do.  Grin

To clarify this issue there was nothing to fix; it was a misunderstanding.

We have never accepted 6 character passwords, always 8 characters minimum. The 6 character length came from a comment I made to a poster who said he only felt secure with 12 character passwords, because our system assigned passwords (minimum 8 chars). I was trying to explain about password length.

I said security experts agree people should use at least 6 characters, uppercase, lowercase, and special symbols, and we used at least 8. The mistake I made was not qualifying that comment, and the group here (who specialize in computation power of all things) ripped into the 6 character length.  Wink

When it comes to passwords the longer they are the more secure they are. Using a 150 character password, for example, would be great if everyone could do it, but usability becomes an issue. For most users the shorter the better; for example, no password or 1 character would be convenient, but that's not secure at all. So where should the lower bound be set? I said security consensus puts that at minimum 6 when using all the symbols, because I was speaking in general - for all sites on the Internet, the majority of which are not financial.

I still don't think I'm wrong in that, but my mistake was not qualifying the statement. For a community of hacking professionals, which is still a bit on edge from the Bitcoinica hacks, I can understand the quick and harsh backlash my comment drew.

However, listening to feedback we've adjusted our password procedure. We still assign a minimum 8 character password at signup, but include a note that users can set their own password anytime. This will hopefully discourage non-security conscious users from using passwords shared with other sites, while at the same time allowing users to set a password length they feel is very secure.

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July 09, 2012, 09:59:01 PM
 #100

I will try to throw out a few bids on some call options, size 100. With the price here at 6.80 on 7/9, I'll pay $15.05 for the right to buy 100 bitcoins from you on 7/27 for $700. Sell the option to me, and you will be credited $15.05. Price stays under $7.1505 and you are better off. After that, you'll need to credit my account the difference.

I think I threw out a good price, but feel free to outbid.

Suggestion: Open up a december 28 2012 option, I would put a bid on a few 100 calls.

Thanks, TTBit! Smiley

Let me go over what you are proposing:

Right now the price is about $6.80, and you are willing to pay $15.05 for a July 27 CALL 100 with strike price of $7.00. (this is the right to buy 100 bitcoins at $7.00 on July 27th)

This is offering someone interested in selling about 5% over the current price. ($15.05 divided by 100 = $0.15, plus we add $0.20 for the difference between current price and strike price = $0.35 additional per coin)

If I was a miner taking you up on the offer here are the possible outcomes:

I list the option and put your $15.05 in my pocket.

1. July 27th price is above $7.00

Let's say the price is $7.10.

I owe you $7.10 - $7.00 (strike price) multiplied by 100 = $10.00

I sell 100 coins on Mt.Gox for a total of $710. I give you the $10 which leaves me with $700. However, I still have your $15.05 in my pocket, so that's a total of $715.05. So that's like selling my coins (when the price is $6.80) for $7.15 each which is 5% higher.
______

2. July 27th price is exactly $7.00

Here I owe you nothing since there is no contract price difference. I sell 100 coins on Mt.Gox for $700, but I still have your $15.05 in  my pocket, so that's a total of $715.05. I still made 5%.
______

3. July 27th price is less than $7.00

Let's say the price is $6.00. I owe you nothing because CALL options only pay when the market price is higher than strike price. I can sell my coins on Mt.Gox if I want, or I can wait until the price reaches $7.00 then sell. I still have your $15.05 in my pocket! I could also create more options on my coins!

So, miners, TTBit is ready to give you 5% selling premium (or more?) on 100 coins! You just need to create the option described above and place it on sell for him to buy.
_________________

Regarding a December 28, 2012 option, that's about 5 months into the future. We currently limit options to 3 months to help preliminary volume, and also reduce volatility risk resulting in insufficient escrow coverage.
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