| Pages: [1] 2 3 :: one page |
| Author |
Thread Statistics | Show CCP posts - 0 post(s) |
Professor Bunsen
Optech Scientific
   |
Posted - 2007.09.24 09:04:00 -
[1]
In line with our policy of daily innovation, Eve Index has developed software to host what I believe is New Eden's first mineral futures exchange.
We are entering a week of closed alpha testing/selected previews before going live in a few days time. Current features are :-
 Automated credit to your betting account via the API, usually within one hour.
The first mineral options to be rolled out will be trit based on the previously published Jita Trit Index.
Contracts are for 1 mil units of mineral, so for example 1 contract for Dec Trit Calls with a strikeprice of 3.4 gives you the right to buy 1 mil units of trit at any time between now and 1 Dec at a price of 3.4 isk.
Facility to write covered calls and puts. Calls require traders to deposit the appropriate amount of mineral as security, writing puts requires 100% of the isk at risk as security, so from an option traders perspective these are guaranteed contracts (at least as good as my rep which is hopefully good for a few bil).
Buying and selling of uncovered calls and puts is available of course with 24/7 trading available on the Eve Index site. Due to the slightly lumpy nature of updates to the underlying index, buy and sell orders are on placed on the basis of a % above or below fair value (calculated using Black- Scholes for the options gurus out there). Your buy and sell orders therefore move in line with the index to preserve that premium/discount.
The methodology for the underlying index, the Jita Trit Index has been previously published [here]. Working with 3 partners I am getting between 6-12 market logs a day via FTP upload on which to base the mineral index. Contributors still welcome BTW. A chart of the [^JTI] is here for interest.
There are no trading charges for using the Eve-Index traded minerals market, I am proposing a 1% fee for withdrawals (because that requires manual processing on my part).
NOTE 1 : Trading is not yet live, so keep your powder dry.
NOTE 2 : Expressions of interest from potential option writers (as opposed to traders) welcome, Eve mail Bunsen.
NOTE 3 : It is very likely that Optech will be seeking to raise capital for a mineral trading fund in due course.
Bunsen - One in the eye for the School of Applied Knowledge !
|
Dr Slurm
General Commodities
|
Posted - 2007.09.24 10:29:00 -
[2]
Sounds great. I look forward to seeing how this turns out.
<sig>
Tired of the inane ramblings of the incompetent? Click here
</sig> |
Shadarle
|
Posted - 2007.09.24 17:33:00 -
[3]
Wow... I have absolutely no clue what that screen shot is even showing, heh.
Perhaps some explanation of what exactly this is all about for those of us who are not financial guru's? I know many financial experts on this forum will understand this and probably will be very excited... but I have to think a lot of people here are going to read this thread and go:
"What?"
Tanking Setups Compared
Stacking Penalty / Resists Explained |
Hexxx
Minmatar
|
Posted - 2007.09.24 18:22:00 -
[4]
 Originally by: Shadarle
Wow... I have absolutely no clue what that screen shot is even showing, heh.
Perhaps some explanation of what exactly this is all about for those of us who are not financial guru's? I know many financial experts on this forum will understand this and probably will be very excited... but I have to think a lot of people here are going to read this thread and go:
"What?"
This idea has been floated a few times (I even tried to do it once myself, the technical hurdles were too much for me) but this is basically a Futures Exchange. Futures Contracts are used to hedge your risks essentially. This service would benefit mineral traders the most.
See wikipedia for additional info. =)
Consulting, IPO Template, and Stock/Bond definitions.
|
Shar Tegral
|
Posted - 2007.09.24 20:22:00 -
[5]
Um, errr, ... wow!?!
As Shadarle said, this is over my head. I understand it, some, but this is getting into the deep end of high finance. I'm just going to be totally stunned if this proves to be very functional. Not to mention I'm more than just mildly excited about a functional options market. (Did I say wow yet?)
Might I also suggest some talented individual write a plain language faq for those of us a bit challenged on this?
It's A GIRL!!!!! |
Jon Asus
|
Posted - 2007.09.24 20:52:00 -
[6]
Edited by: Jon Asus on 24/09/2007 20:55:14
Wowzers, I want in.
Edit: Nevermind, question was ansered by screenshot.
|
Professor Bunsen
Optech Scientific
|
Posted - 2007.09.24 22:35:00 -
[7]
Edited by: Professor Bunsen on 24/09/2007 22:46:22
OK, so here's a traded options 101 as it applies to mineral options in Eve. Just for a moment forget the "real eve" limits on trit price, trit is just the first mineral I'm rolling out so lets use that as an example.
As I write the Jita Trit Index is 3.007-3.294 In other words you can buy a decent chunk of trit (2 bil units) at Jita 4-4 for an average price of 3.294 or sell it for 3.007
An option is a contract giving the buyer the right ( but not the obligation ) to buy or sell a mineral at a set price at some time in the future. A call option gives you the right to buy the underlying mineral, a put option gives you the right to sell.
e.g. "Trit Dec 3.3 Calls are priced at .270 isk"
In fact one option contract relates to 1 million units of the mineral so what is being offered is the right to buy 1 million units of trit at price of 3.3 isk (which is called the strike price) at any time before 1 Dec (the expiry date). The cost of buying this option is 0.27 isk (x 1 mil units) = a total cost of 270,0000 isk.
So as things stand, you can buy trit on the open market for 3.29 isk per unit, why pay for the privilege to buy at 3.3 isk?
The answer is that no matter how far trit rises, by buying the call option you always have the right to buy at 3.3. isk. If trit is selling for 3.5 isk, you still have the right to buy at 3.3 . If CCP scrap NPC shuttle production and trit rises to 4 isk, you can still buy at 3.3 isk any time before Dec.
The pricing of an options contract is composed of 2 elements. Firstly the intrinsic value, if trit is trading at 3.4 and you hold the the 3.3 call option theres a hard value of 0.1 isk. Secondly, theres the time value, the longer the option has before expiry the more valuable it is. Basically theres more time for the market to move in your direction so a greater speculative value. As the option gets closer to its expiry date the time value approaches zero so a Dec 3.3 call with 2 1/2 months to run might might cost .27 isk whereas one expiring in 1 1/2 months would be .21 isk
Lets compare 2 scenarios. You think trit is on the rise, so you buy 1 mil trit at 3.3 off the open market, total cost = 3.3 mil.
2 weeks later you were right, trit is now selling for 3.6 so you sell
Profit is 3.6-3.3 = 0.3 mil i.e. 9.1%
Instead you buy 1mil trit call options (1mil = 1 contract) at a 3.3 strike price for a cost of (0.27x1mil) = 0.27 mil Trit rises as before and 2 weeks later is at 3.6 isk, the call option is now worth 0.44 isk, you sell your contract for 0.44x1mil = 0.44 mil
Profit is 0.44-0.27 = 0.17 mil i.e. 62.9%
Looked at another way say you invest 1 mil isk into your rising trit prediction. Buying the mineral itself your profit is 90k. If you are right and instead buy call options your profit is 620k.
An alternative outlook is that you predict wrongly and trit falls to 3.0 isk. Buying the mineral at 3.3 and selling at 3 loses you 0.3 mil isk i.e. 9.1%
The call option you bought for .27 is now worth 0.12 isk and you sell it back to limit any further losses.
Loss is 0.27-0.12 = 0.15 mil i.e. 55% loss
You can see from the above how options can be used to generate greater profits (or losses) than trading in the underlying mineral, in other words they can be used speculatively to magnify the result of market movements.
(cont)
|
Professor Bunsen
Optech Scientific
|
Posted - 2007.09.24 22:45:00 -
[8]
The other way to use mineral options is to reduce risk, often called hedging as in hedging your bets.
Say you ride the rising trit prices with your 1 mil trit stockpile all the way to trit at 3.5 isk per unit and you feel sure it can't get much higher. You don't want to sell the trit because you may need it for manufacturing later and it took you many trips in your Ibis to assemble it in one place, but you want to insure yourself against a short term dip in the price of trit. You buy 1 Trit Dec 3.3 Put contract. This gives you the right to sell 1 mil of trit for 3.3 isk/unit any time before Dec. The contract costs you 0.3 isk (x1mil) = 0.3 mil total cost.
You were right and trit falls to 3 over the coming month. You lost 0.5 mil isk on the trit you still hold, but your put contract is now worth .55 mil, so not only did you hold your trit but you actually made a small profit.
The above is by no means a comprehensive view of possible ways to use traded mineral options. As well as buying calls or puts you can be on the other side of the contract and "write" options. E.g. the person buying the put option buys the right to sell at 3.3 isk, the person "writing" the put option commits to buy at 3.3 if the option holder requires them to.
By altering the combination of calls or puts you buy you can pretty much increase or reduce your exposure to risk in either a rising or falling market. You can even set up so you profit if the market moves up or down (but you lose if it stays still) or vice versa. Try googling traded option strategies for some mindblowing ideas.
At its simplest though its a good way to get potentially big profits off a small stake in the market, or alternatively can be used to reduce the risks of the market moving against you when sitting on several million/billion units of a mineral.
The nub of it as always is to be able to correctly predict the market in the first place, but thats always a tricky one ! Hope that wets your appetite Shar
|
KarateKid
D00M.
Triumvirate.
|
Posted - 2007.09.25 00:56:00 -
[9]
I am truely impressed.
Really looking forward to this goes live.
Will take mineral speculatino to a whole new level.
________________________________________________________
|
Shar Tegral
|
Posted - 2007.09.25 03:25:00 -
[10]
Originally by: Professor Bunsen
Hope that wets your appetite Shar
Yes it does. I'd like to point out that I am, myself, quite comfortable with the basics. It's the mathematics of Black- Scholes that drives me bonkers. And I don't want a primer on that thank you very much. My ignorance protects me from straining my brain. Please don't tarnish its, my ignorance, purity.
It's A GIRL!!!!! |
Jon Asus
|
Posted - 2007.09.25 10:20:00 -
[11]
Feeling inquistive I typed Black-Scholes into wikipedia, I now wish I hadn't ¼_¼.
|
Auri Hella
The Graduates
Brutally Clever Empire
|
Posted - 2007.09.25 11:43:00 -
[12]
I think I'll have to borrow a few of my brother's books on economics now 
But I think I'll give it a shot anyway. It looks promising, let's hope people will use it.
|
Ionia
Advanced Manufacturing
|
Posted - 2007.09.25 12:54:00 -
[13]
The defining feature of options trading is that you can bet on the movement of a market by making or securing commitments of sales of commodoties without actually owning them.
Please correct me if I misunderstand, but aren't you suggesting that people need to own the items before making the commitment to sell, or need to have the isk before making the commitment to buy?
|
Professor Bunsen
Optech Scientific
|
Posted - 2007.09.25 13:44:00 -
[14]
Originally by: Ionia
The defining feature of options trading is that you can bet on the movement of a market by making or securing commitments of sales of commodoties without actually owning them.
Well its one possibility. Traders on Eve-Index can do just that by buying and selling call and put options. No need to exercise the option if they don't wish to and losses are limited to the price paid for the option in this case.
Originally by: Ionia
Please correct me if I misunderstand, but aren't you suggesting that people need to own the items before making the commitment to sell, or need to have the isk before making the commitment to buy?
Yes I am, for writers of option contracts in a Eve context. In RL when you enter a contract promising to pay $xxx for a stock at some time in the future there are sanctions which follow if you default. As we all know in Eve that doesnt apply, so I'm insisting that option writers either deposit the minerals theyre promising to sell, or the isk they are promising to pay with Eve Index to ensure the contract holders don't get ripped.
|
Ionia
Advanced Manufacturing
|
Posted - 2007.09.25 13:54:00 -
[15]
Originally by: Professor Bunsen
Yes I am, for writers of option contracts in a Eve context. In RL when you enter a contract promising to pay $xxx for a stock at some time in the future there are sanctions which follow if you default. As we all know in Eve that doesnt apply, so I'm insisting that option writers either deposit the minerals theyre promising to sell, or the isk they are promising to pay with Eve Index to ensure the contract holders don't get ripped.
Ok, understood. This kind of nullifies a huge portion of the options market though. Many people make money by selling things that they don't yet have.
|
Block Ukx
KDM Corp
Firmus Ixion
|
Posted - 2007.09.25 14:43:00 -
[16]
Hi Prof. Bunsen,
IĘm not familiar with options so my questions may sound odd to you, but IĘm giving it a try. My main interest is writing calls and puts. I explored your website and these are a few of the questions that I have.
1) Are there any fees associated with writing calls/puts?
2) Once I write a call/put do I have to set up a sell order? Could this be done automatically for a predetermine premium?
3) Where is the money from sales deposited? Are there any fees associated for cashing premiums?
4) Is there a delivery/pick up location for exercised options?
5) What are your current plans on options expiry intervals? Weekly, monthly, bi-monthly?
I understand your reasons behind asking for writerĘs collateral. However, for many reasons, I have no intentions in depositing ISK or minerals to secure my options. Main reason is that it will hinder my operations; no one is going to tie 1 B ISK for a December option.
I think you need a better explanation on how options work if you want the less financial incline to use your site. At first, I was completely lost and I had a hard time figuring out some of the columns. Your explanation of option trading is good, but it took me a while to understand the difference between writing options and trading options.
|
FastLearner
Fury Holdings
Brutally Clever Empire
|
Posted - 2007.09.25 14:47:00 -
[17]
Originally by: Professor Bunsen
Originally by: Ionia
The defining feature of options trading is that you can bet on the movement of a market by making or securing commitments of sales of commodoties without actually owning them.
Well its one possibility. Traders on Eve-Index can do just that by buying and selling call and put options. No need to exercise the option if they don't wish to and losses are limited to the price paid for the option in this case.
Originally by: Ionia
Please correct me if I misunderstand, but aren't you suggesting that people need to own the items before making the commitment to sell, or need to have the isk before making the commitment to buy?
Yes I am, for writers of option contracts in a Eve context. In RL when you enter a contract promising to pay $xxx for a stock at some time in the future there are sanctions which follow if you default. As we all know in Eve that doesnt apply, so I'm insisting that option writers either deposit the minerals theyre promising to sell, or the isk they are promising to pay with Eve Index to ensure the contract holders don't get ripped.
There could be a way to reduce the collateral needed. If some boundaries can be defined for min/max price-ranges of a mineral then in theory option writers need only provide collateral equal to the maximum loss they could take by fulfilling the options they write.
e.g. Say we agreed that the maximum feasible price for Trit is 3.65 (which is probably about right). If I wrote an option for someone to buy Trit at 3.3 then my maximum exposure is .35 per unit. So if I provided ISk collateral of .35 per unit I wrote at 3.3 then, if I defaulted, the option holder would get given that collateral - and I'd never have to buy Trit in advance. Worst case for the person buying the option is that they get given .35 per unit of trit they have an option on - and can buy from market or refine shuttles to effectively get trit at the price they're entitled to. Of course, if I defaulted, then I'd never be allowed to write another option.
Anything which reduces the collateral neeed - without making written options rely on trust - has to be a good thing. I may be interested in writing options - it'll depend very much on what the collateral situation is: any minerals/ISK tied up in collateral have an associated opportunity cost.
You could, possibly, consider depositing any collateral in Fury Bank - earning 1.4% interest per week which could be (partially) returned to option writers to defray the opportunity cost of collateral. That's another reason why I'd prefer collateral to be in ISK - you can gain passive income on ISK, whilst money tied up in minerals is totally dead as far as generating income is concerned.
|
Professor Bunsen
Optech Scientific
|
Posted - 2007.09.25 15:15:00 -
[18]
Originally by: Block Ukx
1) Are there any fees associated with writing calls/puts?
2) Once I write a call/put do I have to set up a sell order? Could this be done automatically for a predetermine premium?
3) Where is the money from sales deposited? Are there any fees associated for cashing premiums?
4) Is there a delivery/pick up location for exercised options?
5) What are your current plans on options expiry intervals? Weekly, monthly, bi-monthly?
I'll answer as best I can.
1) No.
2) Yes, when you have "written" i.e created the option you will see it in the central "holdings" column with an [S] next to it. Click the S to set up a sell order. Not really ideal to automate it as you need to select your sell price, and anyway its a quick step.
3) The Eve-Index website holds your virtual balance, reflecting your account deposits (actually isk are sat in corp wallet). Money from sales is credited to the web site balance. You can withdraw up to that balance at any time and I will transfer the cash back from Utility Bot usually every day or two. Transfers out I am proposing a 1% fee to offset the grind of doing it.
4)Jita 4-4
5)I am thinking quarterly option expiry cycles.
Originally by: Block Ukx
I understand your reasons behind asking for writerĘs collateral. However, for many reasons, I have no intentions in depositing ISK or minerals to secure my options.
Well I think that's the only way the option buyer is going to be sure that the contract is certain to be honoured. I'm certainly not going down the route of having non-anonymous contracts and having the buyers have to take a view on creditworthyness, it just wouldnt work on a market system. There is of course nothing to stop you personally outlining an option contract apart from Eve-Index on whatever terms you wish, but I think as far as Eve-Index goes I want to stick with the buyer knowing that for puts the moneys in the bank, or for calls the mineral is at Jita in the vault.
Thanks for your queries Block, I figured you might have some minerals to hand 
|
Ray McCormack
hirr
|
Posted - 2007.09.25 15:26:00 -
[19]
Originally by: FastLearner
There could be a way to reduce the collateral needed. If some boundaries can be defined for min/max price-ranges of a mineral then in theory option writers need only provide collateral equal to the maximum loss they could take by fulfilling the options they write.
This is a good idea. You could even use the lowest and highest all-time figures as boundaries if no suitable boundary can be found for the other minerals. If you can limit the collateral, and allow it to be ISK which then generates interest (possibly covering any shortfall the boundaries didn't) you may be on to a winner.
|
Mensageiro Cai
Connect Productions
|
Posted - 2007.09.25 15:41:00 -
[20]
I'm really liking this idea. If I had spare ISK floating around i'd chuck it at this. |
Block Ukx
KDM Corp
Firmus Ixion
|
Posted - 2007.09.25 15:50:00 -
[21]
I wish we could work something out because I think your options idea would be very beneficial to BSAC. Yes, BSAC Mineral Reserve holds a lot of minerals in locations far away from Jita. Minerals are constantly used in the production lines, and it would be completely unreasonable for me to move minerals to Jita, and hold them there for a few months away from my production lines. I intent to write calls/puts that I can guarantee 100%, otherwise I wouldnĘt write them in the first place. Betting is not part of my strategy; IĘll leave that to the options traders. I do not wish to trade options.
We could agree to limit the size of my options and I can provide you with references that will be willing to cover for me in the event that IĘm not available. The consequences of BSAC defaulting on a contract will be devastating to BSACĘs business. Again I will only write options that I can guarantee 100%.
From a business stand point, we loose money when minerals sit idle in a hangar.
|
FastLearner
Fury Holdings
Brutally Clever Empire
|
Posted - 2007.09.25 15:52:00 -
[22]
Originally by: Ray McCormack
Originally by: FastLearner
There could be a way to reduce the collateral needed. If some boundaries can be defined for min/max price-ranges of a mineral then in theory option writers need only provide collateral equal to the maximum loss they could take by fulfilling the options they write.
This is a good idea. You could even use the lowest and highest all-time figures as boundaries if no suitable boundary can be found for the other minerals. If you can limit the collateral, and allow it to be ISK which then generates interest (possibly covering any shortfall the boundaries didn't) you may be on to a winner.
I was looking at it from the perspective of a potential option writer - and collateral is the big stumbling block. The minimum return I'll accept on an investment is about 2% per week - as I offer 1.4% interest on Fury Bank deposits and keep 20% of deposits as cash I have to make 1.75% per week on active ISK just to cover the interest I pay.
If I wrote an option with a life-span of 3 months and had to deposit 100% collateral then I'd have to make around 27% profit on the amount deposited as collateral just to achieve a 2% per week compounded return. No way I can see anyone paying 30% of the cost of minerals offered on an option as the purchase fee (e.g. if I wrote an option to buy Trit at 2.3 then I'd have to sell that option at a cost of .62 per unit - meaning, if exercised, the trit would actuallyu be costing 2.92 per unit). Cut the collateral down and that break-even price becomes much lower. Invest the ISK to generate at least minimal returns and suddenly the numbers start to become worthwhile.
|
Shar Tegral
|
Posted - 2007.09.25 16:45:00 -
[23]
Originally by: Professor Bunsen
4)Jita 4-4
I'm going to have to ask, can this be changed?
I don't care which alternate station in Jita just not this blackhole of ships and isk. Breaking Jita must start somewhere and this should be the first place imho.
It's A GIRL!!!!! |
FastLearner
Fury Holdings
Brutally Clever Empire
|
Posted - 2007.09.25 19:11:00 -
[24]
On thinking about it more, I believe the collateral HAS to move to an ISK basis - or the entire purpose of writing options sort of gos out of the window.
Example:
Trit is currently at 3.2. I believe the price of Trit is going to crash and stay below 3.2 for the next 3-4 months. So I decide to write call options on Trit at 3.3 (i.e. offering people the right to buy Trit from me at 3.3 for the next X months). I do this because they have to pay for those options - and I'm confident the market price will never be such that they'll exercise their options.
The problem with the current proposal is that for every call option I sold, I'd have to actually go and buy Trit to cover the possibility that the option would be exercised. That's precisely the thing I don't want to do - as if I'm right I'll end up with a pile of Trit which I bought at 3.2 and which is worth less than that when the options expire. Not only is my ISK sitting around not earning income - but it's invested in something which I'm confident will drop in value.
The same thing (the other way round) applies if I believe the price of Trit is going to rise - and hence would want to write Put options at, say, 3.1. Again, I don't anticipate that the options I write will ever be exercised (you don't write options you expect to be exercised unless you're covering a position). So I don't want to have ISK sitting idle in escrow - as if I'm right I'd prefer to have that ISK invested in actual Tritanium.
Reducing the collateral so that it only covers the likely maximum loss largely addresses this issue. Ensuring some income on collateral further addresses the issue.
Note that the problem I'm discussing has NO impact on people buying options - just on those writing them. But without anyone writing options, there's no futures market.
|
Professor Bunsen
Optech Scientific
|
Posted - 2007.09.25 23:33:00 -
[25]
Do you know Fastlearner, you're right  Thanks for that persuasive flurry of posts. It would certainly be possible to move to a situation whereby the market prices of the minerals simply set the value of the option and no minerals change hands at all. So a day before expiry, when there is next to no time value in the option price with trit at 3.5 if you held the 3.1 call and exercised it you would receive the 0.4 isk = 400k per contract.
The issue of collateral for option writers is a slightly more thorny one. Both the suggestion of limiting the supported range of the mineral and of allowing collateral to remain on deposit are good ones. I'm going to give this some thought and chat to some people to try and come up with a credible proposal. Its more important to get it right than be a few days early to launch.
If you think you have a solution, fire away.
|
Rethmynon
|
Posted - 2007.09.26 01:08:00 -
[26]
Edited by: Rethmynon on 26/09/2007 01:12:35
Edited by: Rethmynon on 26/09/2007 01:09:49
If you think you have a solution, fire away.
First of all immense respect at having a go at creating a futures/options exchange, though I can see hurdles where options trading tritanium is concerned.
1. In options trading the biggest risk taker is the writer. This is because there can be potential unlimited losses to them and that is why there has to be collateral. Using tritanium as that collateral is a no go for reasons stated above. Best to keep to ISK and use tritanium as purely the base product and not an actual transaction of tritanium at the end of it's term.
2. The writer is gambling that the buyer of the call or put is wrong. That means for every written option there is a winner and loser, unless of course the close out price is neutral to both parties. Would there really be enough people trading in EVE for and against a future price rise or fall in Trit? I don't know the answer as I don't trade in minerals.
3. Have you thought about doing it more on the lines of a spread bet index? At least the investors are just gambling on the tritanium price movement and not the tritanium itself.
i.e say the Trit 31 Dec spread has been calculated at 3.20 - 3.40, and I believe the offer price (3.40) is too cheap. I will then buy ISK 1 million per point. A point is every 0.01 movement from 3.40.
Therefore, if it moves to 3.50 and I wish to close my position on or before 31 Dec, I make ISK 10 million . Of course, if it never goes over 3.40 during the assigned period, and in fact drops to 3.20 and I close my position, then I lose ISK 20 million. There will be a question about securing a margin for potential loss, which may open another can of worms, but thought I would throw that "option" in as you were looking for ideas :)
All the best in your venture.
Edit - just re-reading above posts and the spread bet idea has already been suggested in a round about way. Typing this at 2am is not good for my tired brain cells 
Reth
|
Benvie
|
Posted - 2007.09.26 01:15:00 -
[27]
It seems like one of the big problems here is collateral. It all comes down to that. In the real world you don't need collateral, or at least not total collateral, because if you default there are laws and enforcement of said laws in order for the people you owe money to get their money. In game there is no such thing. To solve this we need to solve that problem.
|
FastLearner
Fury Holdings
Brutally Clever Empire
|
Posted - 2007.09.26 11:39:00 -
[28]
Originally by: Professor Bunsen
So a day before expiry, when there is next to no time value in the option price with trit at 3.5 if you held the 3.1 call and exercised it you would receive the 0.4 isk = 400k per contract. In fact, given you will either be up or down on paper and nothing is physically changing hands you would just program the cashing exercise automatically.
I disagree with making the settling of options by ISK automatic. Take the above example - where I hold a 3.1 call and it's the end of the option period. Are you really proposing that if the trit price is currently 3.0, all I have to do is buy up all trit below 3.5 in Jita and I'd receive 0.4 isk = 400k per contract? Price manipulation to alter the value of options is fine - but if someone exercises an option the default settlement should be to receive what the option was for. The ISK settlement I discussed was a fall-back position if a writer defaulted, not a proposal for the normal settlement of exercised options.
Manipulating the Jita trit price in the short-term is entirely possible - especially if you only have to "fix" the price for a period of an hour or two. And if settlement was automatic then you'd, in theory, only need to fix the price for a few minutes: as presumably the price would be sampled at the time at which you chose to exercise an option.
Despite me advocating no depositing of Trit, settlement still (by default) needs to be made in it. And, unfortunately, not having trit deposited in advance means that some means of verifying the fulfilment of contractual obligations needs to be implemented.
|
FastLearner
Fury Holdings
Brutally Clever Empire
|
Posted - 2007.09.26 11:55:00 -
[29]
Edited by: FastLearner on 26/09/2007 11:55:45
Originally by: Rethmynon
First of all immense respect at having a go at creating a futures/options exchange, though I can see hurdles where options trading tritanium is concerned.
1. In options trading the biggest risk taker is the writer. This is because there can be potential unlimited losses to them and that is why there has to be collateral. Using tritanium as that collateral is a no go for reasons stated above. Best to keep to ISK and use tritanium as purely the base product and not an actual transaction of tritanium at the end of it's term.
2. The writer is gambling that the buyer of the call or put is wrong. That means for every written option there is a winner and loser, unless of course the close out price is neutral to both parties. Would there really be enough people trading in EVE for and against a future price rise or fall in Trit? I don't know the answer as I don't trade in minerals.
3. Have you thought about doing it more on the lines of a spread bet index? At least the investors are just gambling on the tritanium price movement and not the tritanium itself.
i.e say the Trit 31 Dec spread has been calculated at 3.20 - 3.40, and I believe the offer price (3.40) is too cheap. I will then buy ISK 1 million per point. A point is every 0.01 movement from 3.40.
Therefore, if it moves to 3.50 and I wish to close my position on or before 31 Dec, I make ISK 10 million . Of course, if it never goes over 3.40 during the assigned period, and in fact drops to 3.20 and I close my position, then I lose ISK 20 million. There will be a question about securing a margin for potential loss, which may open another can of worms, but thought I would throw that "option" in as you were looking for ideas :)
All the best in your venture.
Edit - just re-reading above posts and the spread bet idea has already been suggested in a round about way. Typing this at 2am is not good for my tired brain cells
Reth
Spread-betting on Eve mineral prices essentially wouldn't work. The volume traded is sufficiently low that it doesn't require a whole ton of ISK to manipulate the price at a specific time. It would just degenerate into who can buy (or place sell orders) the most effectively in the minutes/seconds preceding the instant at which the closing spread is calculated. That's why settlement has to be, by default, in the actual underlieing commodity.
Let's say I hold the trit 3.2 call option and, with the expiry of the option approaching, trit is available in Jita at 3.1. The option I hold is basically worthless - I got it wrong.
If, however, settlement was by default in ISK, then I could buy up all trit below (say) 3.4 - and suddenly my option is worth 0.2 ISK per unit. That's grossly unfair on the option writer - who knows that trit is actually trading at 3.1 - but is denied the right to settle in trit. Now obviously if I can force the trit price to stay at 3.4 and the option writer has no Trit to hand then he may well have to buy it from me at 3.4 to provide back to me at 3.2 - but he has the option of sourcing it elsewhere (and if the "normal" price at Jita was 3.1 before my manipulation then he can likely get it at 2.9 a few jumps away).
In short: standard settlement MUST be in the underlieing commodity unless otherwise agreed by both parties. The ISK collateral is just a protection against default - and anyone who defaults should be banned from ever option trading again AND named/shamed as a defaulter (agreement to which should be part of writing/buying an option).
|
Shar Tegral
|
Posted - 2007.09.26 12:02:00 -
[30]
Originally by: FastLearner
some means of verifying the fulfilment of contractual obligations needs to be implemented.
Originally by: FastLearner
In short: standard settlement MUST be in the underlieing commodity unless otherwise agreed by both parties. The ISK collateral is just a protection against default - and anyone who defaults should be banned from ever option trading again AND named/shamed as a defaulter (agreement to which should be part of writing/buying an option).
As this idea keeps getting debated I forsee that it is confirmation of completion, one way or the other, that is the major hurdle here. And barring administrative oversight/overload or complete honor system there doesn't seem to be a solution coming to my mind. I need coffee, too early.
It's A GIRL!!!!! |
| |
|
| Pages: [1] 2 3 :: one page |
| First page | Previous page | Next page | Last page |