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Author Topic: Bitoption.org -- ESCROWED LIVE Bitcoin Options Trading  (Read 35024 times)
bitoption
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June 03, 2011, 10:30:38 AM
 #41

Update:

That call is not appealing, since it is BTC denominated.

I will be bringing the site down briefly today to re-denominate calls in USD; this is a bug.

Owner of the call; I'll get in touch with you to see what you'd like to do.


----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

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bitoption
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June 03, 2011, 05:01:43 PM
 #42

OK,

I've thought about this some more, and am not sure what to do about it. I'd like some input -- should Calls be BTC or USD denominated, that is, what do you pay with for the right to buy BTC for USD in the future?

What's strange about paying BTC is that you have a very non-linear payout curve; so, for example, your guaranteed loss is 100% at 1BTC price; you're paying that whole coin you'll be able to buy later right up front.

Put this way, 4 BTC for a 1 BTC call is obviously a scam.

Puts have this same element to them.

On the other hand, we won't be accepting USD directly, so I don't want to have to make people convert to USD if they don't wish to (although we do have functionality to support this)

What are other's thoughts on this? Simplest would be to limit asks to 1 BTC for calls and puts, and essentially let caveat emptor.

More complex would be redenominating the offers in USD so that you pay USD for the right buy/sell BTC later.
A little more mindbending would be changing the underlying to USD so that you pay BTC for the right to buy/sell USD later. As it is, you pay BTC to buy/sell BTC later. There's nothing mathematically wrong with it, but it may be a little confusing for an already confusing area of finance.



I'd like input before I re-launch the website.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
bitoption
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June 03, 2011, 05:35:20 PM
 #43

Update, I've put in a filter to make sure no bids / asks are over 1.0

I'll probably put in a little calculator that says "you'll make money once the price gets to x" as a helper at some point.

As an example, a 12.00 call is in the money right now by say $1. Hence to make a little bit right now, and speculate the market will drop, you should price it at least a bit over 1/12 of a BTC.


----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
FreeMoney
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June 03, 2011, 05:56:31 PM
 #44

I think it would be best to pay dollars for the right to buy (or sell) BTC at some dollar price at some future date.

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bitoption
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June 03, 2011, 07:18:29 PM
 #45

I've gotten a PM requesting the opposite...

I think for launch purposes right now, I'm going to launch with BTC, and add underlying USD support as an early feature, so you can go both ways.

The market can decide. And there should be some nice arbitrage opportunities for bot writers, so everybody will win, hopefully.


----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
dacoinminster
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June 03, 2011, 08:07:29 PM
 #46

People are going to want to buy USD insurance against a total collapse in bitcoin prices. Perhaps these funds could be held in MtGOX USD?

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June 03, 2011, 09:55:53 PM
 #47

Yes,

That's where the funds are kept right now.

So, to be clear, you would pay, say .2BTC for the right to sell at say $10/BTC in 4 months.

Someone would take the other side of this, and say "sure, give me your .2, I'll keep my 10*BTC in USD here."

You would be 'bidding' on a put in this case, and you'd be putting some of your BTC at risk in order to hedge down.

The other side would be 'asking' or 'writing' the put and they'd have USD at Mt. Gox locked off in order to do so.


Whenever you wanted to exercise your put, you'd either transfer BTC into our exchange, or buy a little, and exercise,sell, then rinse/repeat.  This would be a 'naked' put if you didn't have any BTC upfront other than the .2 per contract. It would be 'covered' if you had it, but the system doesn't care if you have the BTC to sell right now; that's your responsibility, and it's yours to exercise if the puts come in as worth something.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
bitoption
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June 03, 2011, 11:05:49 PM
 #48

Okay, it's up.

It's been a long day, but the v2 release is up at https://bitoption.org

Please go ahead and try it out.

Disclaimers; uneven design, could break.

When I say break, it's much more likely to break by doing what you told it to exactly (I accidentally converted a large number of BTC on Mt. Gox testing it earlier today) than it is to do the wrong thing. I don't believe there are significant logic or finance bugs in it.

Per our discussions, BTC denominated, which means non-linear returns; prices are capped at 1 BTC per contract.

I also update strike price rules for USD to be at the $.50 level, I want to make sure we get a market going.

So, go forth and trade!

Per this discussion, Mt. Gox is used for all the holding of BTC (really, we don't even have a wallet), so that may make you feel better or worse, but that's the situation right now.

We will eventually be able to allow you to withdraw USD from Mt. Gox, but that's a little down the road.

I'm off, but available by email over the weekend. There's an urgent contact form up at /help on the site as well.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
random_cat
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June 04, 2011, 01:41:31 AM
 #49

Congratulations.

The above mentioned contact form does not appear to exist.  Perhaps that means some even more up to date docs are available Smiley

What are the exact mechanics of expiration? Is there a CBOE style auto execution for longs at expiration?  Is there some brief period near expiration where trading halts?  How do I ensure I am synced to your clock?

Thanks for your efforts.

bitoption
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June 04, 2011, 03:46:20 AM
 #50

These are all great questions.

So, we probably should halt trading (but not execution) a bit before. I'm happy to take thoughts on this.

Re: auto-execution, I had planned on this being a third-party service, but I'm open to 'auto-execute' if people wish.

One possibility, if you have in the money naked puts, say, is that you may well move the market to out of the money as you execute them. This sort of thing made me think it would be better to let people execute on their own.

I'm planning on adding a third tab to the right side with a list of your options and the choice to execute, should be together soon.

Re: time and date, I'll put up a URL and post on the site so that you can be up to date.

Re: expiration, some time shortly after expiration, non-executed contracts will be deleted, this will free up any funds locked as well.

A few more plans:

On reflection, I do plan on moving to USD-pricing, the system has an 'underlying' security system built in, and I will try and re-work this to use USD. We'll either keep BTC-pricing alongside or sunset, depending on market demand, but I anticipate we'll "lead" with the USD-denominated at some point. This is at least a month away.

On contacting me: admin@bitoption.org


https://bitoption.org/help has API documentation.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
hazek
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June 04, 2011, 05:39:50 AM
 #51

Hmm I'm so confused looking at the 5 options currently available. First I only see the type, not the quantity so I have no idea how that works.. Second I don't understand how I can buy an option. Third I don't understand where my money is going to be held and how I can withdraw dollars. And finally I'm really new to this and the whole layout of the sheet is super confusing to me.

Maybe it's just me and it's just something I wont be trading in?

My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right)

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bitoption
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June 04, 2011, 06:32:53 AM
 #52

So, more options posted will help things a little, but, also we clearly need an FAQ. I'll respond here, and work up to getting a good one.

To describe I'll choose a July 28 bid currently on the site:

Call: Price .005 Strike 20

This is a bid, so someone wants to buy something.

They want to buy a call; a call is the right (but not obligation) to buy at a future date (in this case, any time before July 28)

The price they are agreeing to pay if they exercise the call is $20USD.

They are willing to pay .005 BTC for this right.

So, this is a bet from someone who thinks that it is likely that BTC will be a bit over $20US before the end of July. If bitcoins go to $21 US, they will have paid .005 BTC now (roughly 7 cents US), and they will make $1, so they'll net $.93 USD on their trade.

If, on the other hand, BTC never goes over $20, they will have lost their 7 cents.

A few people might be interested in this call, although perhaps not at this price.

So, let's say you like bitcoins but think $20 will never happen by July; it's too much to imagine. In this case, you could  "write" this call, and pocket the .005 BTC for every contract you successfully write.

What does that mean? that would mean you'd put in 1 BTC for every contract you want to write, then you'd "ask" or "write" the call july 28 $20. Now, let's say you're happy with .005 BTC as a price; it's like free money to you, and you hope you sell a thousand of them, then August 1, you'll do it again, making nice bank on your BTC stash.

You would "ask" .005 BTC for a July 28 $20 call. Bitoption will clear that against the bid. At that point, you have sold an option contract. We mark you as obligated for 1 BTC, and don't allow you to remove it until the call expires or is executed.

You would get .005 BTC transferred to your account, less our fee (1%, min fee .0005 BTC, so in this case, you would get .0045 BTC).

Now, perhaps you like this idea, but you think .005 is too low. You want more back. you could "ask" for a higher price in exchange for locking off your BTC till july. Maybe .1 BTC; perhaps someone will pay that! You would then ask .1BTC for july 28 $20 call. Our form would show, on the left, a bid of .005 and an ask of .1 . You'd then wait until someone came along and either narrowed the bid/ask spread with a new bid, or bought.

Hopefully this helps.

In answer to your 'how many?' question, it's a really good question. Normally market makers fill out these option books, and people buy a few contracts at a time, but each contract equals 100 shares of an underlying. You'd buy one or two, check price, buy more, I guess. In our case, we're an open book trading system, so we're willing to show the whole book, and in fact, you can get it through the API, but it's actually a lot to display through the web interface.

What I'm likely to add is a hover on a given row so that you can see the whole book for that particular contract type. I'm open to suggestions about display.

Hope this has been helpful!

If you're long BTC right now, probably you want to throw out some call bids and see what happens. If you're short, you might want to make some put bids. It would be nice to sell BTC at $20 end of July if you think they'll implode, right?



 

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
BTC_Bear
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June 04, 2011, 07:04:58 AM
 #53

If I may,

  Good work on your Idea. Might I also offer the suggestion of offering Binary Options aka FRO's on your service. This technically doesn't require someone with BTC to be able to purchase them. In other-words, you will have a larger customer base, with out the need for currency transfers to and from BTC.

And correct me if I am wrong, it sounds like you are going to charge a 20% commission. Way to high.

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June 04, 2011, 03:52:15 PM
 #54

Hello BTC_Bear, I hope you come trade with all the bulls!

Our commission structure:

On a crossing: 1% from each party

If you want to become a value-added provider, say with a great website which streams quotes, and allows people better features than our humble one, you can charge a commission, whatever you like, up to 10%. You choose.

We will take 20% of the commission you choose; that's our way of paying for supporting third-party API developers. Of course, you con't have to charge anything.

So, in short, it's 1%.

I really like the binary options idea; I believe it will be easier to understand and trade for people. I'll have to look into how it could be implemented.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
FreeMoney
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June 04, 2011, 07:33:36 PM
 #55

Hello BTC_Bear, I hope you come trade with all the bulls!

Our commission structure:

On a crossing: 1% from each party

If you want to become a value-added provider, say with a great website which streams quotes, and allows people better features than our humble one, you can charge a commission, whatever you like, up to 10%. You choose.

We will take 20% of the commission you choose; that's our way of paying for supporting third-party API developers. Of course, you con't have to charge anything.

So, in short, it's 1%.

I really like the binary options idea; I believe it will be easier to understand and trade for people. I'll have to look into how it could be implemented.


Binary options give incentive to try to move the market when the price is close to event price. I'm sure they have some purpose and are fine in super deep markets, but I would avoid them myself.

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June 04, 2011, 07:58:13 PM
 #56

Can you please fix the "forgot password" button, it doesn't seem to work and I've already forgotten what I used when I wanted to briefly try it last night..

My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right)

If however you enjoyed my post: 15j781DjuJeVsZgYbDVt2NZsGrWKRWFHpp
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June 04, 2011, 08:49:11 PM
 #57

Hello BTC_Bear, I hope you come trade with all the bulls!

Our commission structure:

On a crossing: 1% from each party

If you want to become a value-added provider, say with a great website which streams quotes, and allows people better features than our humble one, you can charge a commission, whatever you like, up to 10%. You choose.

We will take 20% of the commission you choose; that's our way of paying for supporting third-party API developers. Of course, you con't have to charge anything.

So, in short, it's 1%.

I really like the binary options idea; I believe it will be easier to understand and trade for people. I'll have to look into how it could be implemented.


Binary options give incentive to try to move the market when the price is close to event price. I'm sure they have some purpose and are fine in super deep markets, but I would avoid them myself.

Point taken, however, they allow people without BTC, to get in on the action 'sort of speak'. Not to mention, nay sayers can put their money where their mouth is, to quote an adage. Bears and Bulls can take them out.

My intention, overall, is to make a more complicated market. So, if Bots, drive the price up, others will win. And win the price falls, there won't be just losers. I love Vertical Bear Spreads, it is on of the safest techniques, in a new and volatile market. It allows me to buy insurance on my gains, while protecting from excessive losses. Not to mention, the added liquidity built in. If the market falls deeply, I already have a Buyer, I don't need to wait for one to show up. The biggest problem to this point is Trust on following through with the contract. But if this type of trade was escrowed, it would be a boon for stability.

 We do need however, more exchanges with data feeds, the more exchanges the harder it is to manipulate the market. Which everyone knows can be done pretty easily at this point at the right times. I rely on those who do it. Their patterns are predictable. Just recently this happened as it went up to $18.

On another matter;


 Tcatm, provides a good service, although not 'Level 2' per se. I will eventually provide a live service, as soon as I can finish the FileMaker code for Trading on MTGOX, keeping track of ROI, APR Gains/Losses, Cost Basis, etc... with trades. My intent is to port this over to FM_GO, to put on the IPhone, Apple can't deny their own product. FileMaker.

Detecting Bot activity is getting easier via various methods, some even use signatures. I name the Bots according to their methods determined over a data sample rate on their trades, and sort of reverse out their algorithms. Don't get me wrong, I like Bots, they are 'predictable'.  Unlike humans, that decide on something and then change their mind and use their 'gut' feelings.

Best Regards,

Let me know when you site is ready bitoption, I like the idea and its eventual deployment.


Corporations have been enthroned, An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. ~Abe Lincoln 1ApJdWUdSWYw8n8HEATYhHXA9EYoRTy7c4
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June 04, 2011, 09:03:40 PM
 #58

Quick updates, and a question:

1) I'm still trying to squash a Mt. Gox exchange bug (critical for launch), after that, I think I will ease us into open beta. Hopefully today; more updates in this thread.

2) I have slotted 1 contract = 1 BTC. Most options markets are 1 contract = 100 of the underlying. Does anyone have a strong opinion on this? Since we clear automatically, I'm not worried about logistics. I am guessing that smaller units per contract increases liquidity, but I'm not really sure. It wouldn't be the end of the world to rebase later, but it would be enough of a pain that I'm curious what people think. Opinions welcome.

Thanks guys! I'm excited!

I like 1-1.

1-1 actually makes plenty of sense.  Only US equity markets have the "100 shares per contract" really, and the reason for that is that historically stocks traded in 100 share round lots.

For example, almost all the futures contracts traded at the CME, NYMEX, and a host of other exchanges are 1 contact per option (Corn, Soy, Wheat, Natural Gas, Crude Oil, Gold, Silver, ... the list goes on...) so I'd say the 1-1 is actually the PREFERRED contract multiplier in this case.

--e
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June 05, 2011, 12:43:13 AM
 #59

Hey hazek, email me at admin@bitoption.com with login info and I'll get you sorted.

Forgot password should be working in the next day or so.

I think the binary options would appeal to a lot of people; my first step is to make sure I can do USD-denominated.

bitoption is all escrowed, by the way, the trades are guaranteed.

----** In Beta: The First Bitcoin Options Market ----**

Explanation and discussion: http://forum.bitcoin.org/index.php?topic=9611.0

API Developer Thread:
http://forum.bitcoin.org/index.php?topic=14194.0

-----------------------------------------------------------
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June 05, 2011, 01:59:24 AM
 #60

For BTC expiration price settlement it might be better to use a weighted average of trades over a certain time period at expiration.  This could dissipate manipulation.

It seems to make more sense to have the bids and offers priced in dollars not BTC.   With BTC pricing of bids their relative value changes with the change in the BTC to $ exchange rate.

100 to 1 makes more sense if you are trying to replicate the pricing of option trading in US stocks which most have familiarity.  You could always add options contracts with that multiple later.

How can traders trust you?  Buyers have to make payment up front, and sellers have to transfer BTC as collateral.

Nice work on the project.
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