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Author Topic: Bitoption.org -- ESCROWED LIVE Bitcoin Options Trading  (Read 35038 times)
FreeMoney
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June 05, 2011, 02:38:01 AM
 #61



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.
 

Binary options aren't special in terms of letting people bet against something. Selling a normal call or buying a put does that already. Binary options bring an "all or nothing" element that encourages people to "push the price over some ledge". It isn't fundamentally bad, but it isn't wise to use them in any size relative to market moving amounts.

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bitoption
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June 05, 2011, 02:59:17 AM
 #62

I think that their simplicity would appeal to a large segment of the market here.

I'm imagining hourly , daily , weekly, monthly, (yearly?)


----** 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 05, 2011, 04:34:09 AM
 #63

I think that their simplicity would appeal to a large segment of the market here.

I'm imagining hourly , daily , weekly, monthly, (yearly?)


Are calls so hard to understand? You are buying the right to buy at X price. Is that harder than you are buying the right to Y if someone trades coins for X price?

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June 05, 2011, 04:52:56 AM
 #64

Binary options are functionally the same as European options.  Options exchanges in the US are dominated by American style not European style options. 
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June 05, 2011, 05:08:03 AM
 #65

Binary options are functionally the same as European options.  Options exchanges in the US are dominated by American style not European style options. 

Wow, I'm confused then. I thought American was exercised anytime, European exercised near expiry, binary only triggered if price is above/below strike at expiry and worth a fixed amount. Correct me please.

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June 05, 2011, 01:40:13 PM
 #66

Binary options are functionally the same as European options.  Options exchanges in the US are dominated by American style not European style options. 

Wow, I'm confused then. I thought American was exercised anytime, European exercised near expiry, binary only triggered if price is above/below strike at expiry and worth a fixed amount. Correct me please.


Ditto ^^

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June 05, 2011, 03:41:48 PM
 #67

An uneducated question here...

Are the trades P2P or do bitoption hold hostage both sides of the trade ?

I'm  thinking about the scenario, i long a call @ 50$ / BTC and the BTC skyrockets to 100$, can the person i bet against "default", or do i have a guarantee by bitoption that i'll get delivered my assets if i excercise ?

Thanks in advance

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June 05, 2011, 06:34:33 PM
 #68

Binary options are functionally the same as European options.  Options exchanges in the US are dominated by American style not European style options. 

Wow, I'm confused then. I thought American was exercised anytime, European exercised near expiry, binary only triggered if price is above/below strike at expiry and worth a fixed amount. Correct me please.

My understanding is European and binary act the same in that either there is a payoff or there is not.  With both there is no exercise prior to expiration.  At expiration they are either worth something or nothing.
The difference being with binary the payoff is fixed, with European the payoff is variable.
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June 05, 2011, 09:22:25 PM
 #69

Binary options are functionally the same as European options.  Options exchanges in the US are dominated by American style not European style options. 

Wow, I'm confused then. I thought American was exercised anytime, European exercised near expiry, binary only triggered if price is above/below strike at expiry and worth a fixed amount. Correct me please.

My understanding is European and binary act the same in that either there is a payoff or there is not.  With both there is no exercise prior to expiration.  At expiration they are either worth something or nothing.
The difference being with binary the payoff is fixed, with European the payoff is variable.

Right, but Euro and American are smooth and binary is all or nothing. The all or nothing gives major incentive to shove the market if it is close. This makes them undesirable to me, but I guess some might want them.

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bitoption
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June 05, 2011, 11:26:02 PM
 #70

bitoption is 100% escrowed; your coins / USD will be lockboxed until and option expires or is exercised.


----** 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 06, 2011, 04:02:31 AM
 #71

Update, I'm taking the trading down for 12 hours or so and implementing USD as the underlying trade-against currency.

I went back and forth over taking payment in USD (which would solve the non-linear returns problem), or using USD as the underlying, which also solves the problem, but means you'll be transacting in 1/(USD/BTC rate), so right now roughly .057 or so is an at the money strike price.

In the ends, I have two reasons for moving ahead with using BTC to pay and having USD as the underlying.

The first is, of course, that using BTC for sending and receiving payments is really easy (thanks Satoshi!). Right now, we allow you to exchange on Gox in your bitoption lock-box account to get USD. This is so very much easier than dealing with USD payment problems; just send us BTC, request them, it's all automated, and no problem.

The second is that we're in early stages of working with GBLSE (very early) to get options on other listed securities there, and those contracts will all be BTC-for-some-underlying.

Given those, I'm hoping you all will be patient with me and put up with inverting Gox' quoted exchange rate when you figure out what's in the money or not.

Here's how a call would work right now:

You buy a call at .0571 (BTC/USD) strike price for July 28. You pay .01 BTC per call. (1 contract = 1 underlying = 1 USD). This is a 'short BTC/long dollar' trade.

The exchange rate goes to $5USD / BTC, or in our terms .2 (BTC/USD).

Now, everyone else is buying USD at .1 BTC per, but you have the right to buy USD at .0571. Counting the contract price (and ignoring commission), your cost is .0671.

Let's say you got 100 of these: you then spent 6.71 BTC to buy $100 USD. If you like, you can immediately convert back to BTC and get 10BTC; you have hedged against a BTC drop successfully. If you prefer, you can hold onto the USD, of course.

One thing this means is that if BTC keeps strengthening, we'll be dealing with small decimals. On the other hand, if it weakens, we'll be back to using numbers greater than 1. I'm considering using milliBTC as the unit on the site, happy for input (if it's soon!)



----** 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

-----------------------------------------------------------
broker11
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June 06, 2011, 05:56:16 AM
 #72

The exchange rate goes to $5USD / BTC, or in our terms .2 (BTC/USD).

Why are your terms different than the exchange rate?  Seems like it would make more sense to people to have $ strike prices.
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June 06, 2011, 06:58:49 AM
 #73

It would, if you thought in USD.

I'd like people to think in BTC. As I said above, this also makes it possible to trade options on other denominations easily. For instance, we could have a EUR underlying easily, whereas if it were the reverse, you'd have to go through two conversions.

Alternately, why should you have to deal with USD-BTC exchange rates if you want to buy calls on SIN, at the GLBSE?

Finally, I think that transacting in BTC is marginally legally safer.


----** 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 06, 2011, 07:21:36 AM
 #74

MAJOR UPDATE It's up.

To get things rolling, I posted 200 calls at .05 ($20) for July 28. I'm offering .01 BTC per.

Shorts; you could have 2 BTC in your pocket in very short order.

I added an FAQ to the site.

Also, undocumented feature: Click the "bid/ask" and it will give you a full listing of the orderbook.

----** 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

-----------------------------------------------------------
jerfelix
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June 06, 2011, 11:05:03 AM
 #75

Looks pretty cool.

My eyes aren't so good, and I scanned the first and last several posts for the URL, and it took me a while to see it in your signature.  So to help others, I'll post it:
https://bitoption.org/

I didn't see the commission charge listed anywhere in the FAQ.

To get things rolling, I posted 200 calls at .05 ($20) for July 28. I'm offering .01 BTC per.

So let me make sure I understand this.  You are offering to buy a call for .01 (times 200), and you are looking for someone to write it for you (i.e sell it to you).  Is that about right?  And this means that you'd be able to buy 200 BTC anytime between now and July 28 (presumably 2011) from the writer for $20 each.  

So does the writer need to have 200 BTC on deposit with the exchange?

It does sound like an easy way to pick up 2 BTC!  Because I can buy them for 18 now, move them to the exchange, take your 2 BTC.  Even as a bull, it's a good deal - it just caps my gains on those BTC's at $20.  If only I had 200 BTC!  And if only the system had a bit more reputation!



Also, undocumented feature: Click the "bid/ask" and it will give you a full listing of the orderbook.
I can't figure this out.  Please explain.  Do I need to be registered?
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June 06, 2011, 03:17:38 PM
 #76

Re: commission, you're absolutely right, it was listed here, but not in the FAQ. 1%.

The call: each call is for one USD.

So, 200 calls is the right to buy 200 USD at .05 BTC per USD. The writer will need 1 USD in their account per contract they write.

I'm too sleepy to re-confirm that buying these is actually a bullish strategy, but I believed it was when I bid on them.



----** 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 06, 2011, 10:19:53 PM
 #77

BitOption: Conventionally, a thread like this would have all the important information in post #1, which would be kept up-to-date. I advise you to edit post #1 in this thread with the following info:

1) A link to bitoption.org
2) A brief description of bitoption.org, and what it does
3) Some simple examples of how to do a couple bullish and bearish trades
4) Update the subject of post #1 (which will change what the whole thread is called)

Almost nobody on these forums will be used to thinking in options, so examples are going to be important.

Also, having to constantly calculate 1/X is really annoying. Can we at least get BTC/USD prices in parenthesis anywhere you display USD/BTC?

Some way to see trading history on the exchange would be really helpful too.

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June 06, 2011, 11:26:53 PM
 #78

Here is my attempt at some examples (IMPORTANT EDIT: My math below is wrong. See post #1 in this thread for correct math. I'm leaving my wrong math below for posterity):

1) The bitcoin ultra-bull: buys 500 puts at a strike price of .02 BTC/USD (The right to buy 10 bitcoins for $500) for 0.1 BTC. When bitcoins skyrocket to $1000 each, he exercises the put, in which case he gets to buy 10 bitcoins at $50 each when they are currently worth $1000 each.
2) The bitcoin ultra-bear: buys 5000 calls at a strike price of 0.5 BTC/USD (The right to sell 2500 bitcoins for $5000) for 1 BTC. . When bitcoins crash to 0.01 each, he exercises the call, in which case he gets to sell 2500 bitcoins at $2 each when they are currently worth 0.01 each.
3) The ultra-bull counter-party need not be a bear, but rather just someone who doesn't think that bitcoins are going above $50 before the option expires. They put their 10 bitcoins in escrow (currently worth < $200), and they either get 10.1 bitcoins back, or $500 USD + 0.1 BTC back. Not a bad deal.
4) The ultra-bear counter-party is just someone who doesn't think bitcoins are going to fall under $2 before the option expires. They put their $5000 in escrow (currently worth < 300 bitcoins), and they either get $5000 USD + 1 BTC back, or 2501 bitcoins

The counter-parties can make a nice steady income just betting against massive changes in bitcoin values. The ones buying puts and calls are essentially playing the lottery - betting on massive changes.

There are a LOT of other things that you can do with options (spreads and such), but this should get people started. Please help me fix any errors above - I am not an expert on options, and I may have gotten something completely wrong.

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June 07, 2011, 01:46:02 AM
 #79

registered... can't log in...  Huh
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June 07, 2011, 02:54:37 AM
 #80

dacoinminster
1) & 2) Any chance of pricing the contract in USD/BTC?  The forum thread called "rally" is about the BTC getting stronger and USD/BTC increasing.  Most look at it this way.
3) and 4) I don't think you get a choice but the contract should indicate whether they settle in dollars or BTC, I assume BTC.
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