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FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.09.26 13:29:00 - [31] Originally by: Shar Tegral 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. I don't think it's quote as big a problem as it may at first seem. As always, an example is best way to address it: Person A holds an option to buy Trit. The option was written by person B. In the currently proposed system, things would work smething like this: When person B wrote the option, they deposited as collateral with Eve-Index the amount of trit they'd written options on. Person A indicates that they want to exercise their option. Person A creates an item-exchange contract to Eve-Index to purchase the quantity of trit they have options on at the price their option was written at. Eve-Index complete the contract. With full administrative oversight, the system would work something like this: When person B wrote the option, they desposited ISK collateral with Eve-Index to cover the defined range of trit prices. Person A indicates that they want to exercise their option. Person A creates an item-exchange contract to Eve-Index to purchase the quantity of trit they have options on at the price their option was written at. Eve-Index inform person B that the option they wrote is now being exercised. Person B creates an item exchange contract to Eve-Index, giving the amount of trit required in return for their collateral back. Eve-Index complete the contract from person B Eve-Index complete the contract from person A The amount of extra work required from Eve-Index is relatively small. There are two key differences in the process: 1. Collateral is now such as to make writing options more feasible. 2. When an option is exercised it'll now take substantially longer to get your trit. The time delay is the issue which really needs to be addressed if this sort of system is implemented. It needs to be addressed from two perspectives: 1. Delivery of trit covered by an exercised option needs to be predictable to the option holder - otherwise the system becomes worthless for use by anyone who actually wants to buy/sell tritanium for use. 2. Option writers need a reasonable warning of when an option is exercised, so they aren't defaulted just because they happen to be away for a few days. My feeling is that both of these issues are best addressed by having predefined settlement periods/days. For example, the system may be: Options exercised on Thursday-Saturday are due for settlement on Monday, Options exercised on Sunday-Wednesday are due for settlement on Friday. In that example, anyone writing options would know that so long as they check for exercised options on Sunday and Thursday, they'd never miss a settlement request against them. And people exercising options would know when they could expect to get their ISK/minerals. Notification of exercised options would presumably be automatic via the website - and hence not reliant on anyone from eve-index being online. Eve-Index' involvement would just be to check and complete 2 contracts per exercised option.
Block Ukx KDM Corp Firmus Ixion	Posted - 2007.09.26 15:19:00 - [32] You are overlooking the simple fact that the current set-up offers no incentive to option writers to use this system. Using the market is more efficient, secure, and faster.
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.09.26 15:33:00 - [33] Originally by: Block Ukx You are overlooking the simple fact that the current set-up offers no incentive to option writers to use this system. Using the market is more efficient, secure, and faster. I'm guessing this was addressed to me - if so, you're wrong. The whole thrust of my posts has been that the system proposed in the OP offers no incentive to option writers - and proposing ways to amend it so that it does. Even IF the market were more efficient, secure and faster it can only only compete with the options market when it comes to call options. There's no current market mechanism I can think of which allows you to profit from the equivalent of put options. If you think the price of a mineral is going to rise you can buy it up - but if you think it's going to fall how do you make a profit from that? And how does a mineral producer cover themselves vs such a fall in price? The extent to which Bunsen's option trading competes with the market on call options depends on a couple of main factors: 1. The collateral required - this plays a major part in determining whether writing call options is competetive with just buying minerals up and holding on to them. 2. The price of options - this determines whether buying options is competetive with buying minerals up as a reserve. This also plays a part in determining whether writing call options is worthwhile.
Block Ukx KDM Corp Firmus Ixion	Posted - 2007.09.26 16:00:00 - [34] Sorry, Let me re-phrase it. The current proposals offer no incentives to BSACÆs Mineral Reserve to participate in writing options; something IÆm very interesting in doing. Currently, we have a set of internal rules to protect against price fluctuations. I view them as internal call/put options. I was hoping to extend it to the public by using BunsenÆs platform.
Professor Bunsen Optech Scientific	Posted - 2007.09.26 18:51:00 - [35] Edited by: Professor Bunsen on 26/09/2007 18:54:25 OK considering collateral, let me float this proposal past the assembled brainpower of the forum. Assume that 6 long-in-the-tooth Eve players of some repute have been approved to write options at Eve-Index. Call them the Mineral Option Writers(MOWs). SampleMineral is at 4 isk on the market. Considering the historical trading range the MOW's agree that they will cover a trading range of 2-6 isk for SampleMineral. One of the MOWs, OptionWriter creates (writes) a SampleMineral Call at a strikeprice of 4. The maximum that he can lose is 6-4=2 isk. Each contract is for a million units so to create the option Eve-Index requires that he deposit 2 mil isk as collateral in order to write the options and holds that. OptionWriter goes on to offer the options for sale (at 0.34) and they are bought by OptionBuyer so he is paid 340k isk. Bad luck for OptionWriter, SampleMineral rises in price to 5 isk and is now worth 0.42 OptionBuyer could put up a sell order to sell the option for isk, but instead he decides he wants the trit, so clicks on the "Exercise Option" button on the web site. Eve-Index notifies OptionWriter that his option has been exercised by email and on the web site. OptionWriter has 1 week to deliver the required amount of SampleMineral to OptionBuyer at Jita by setting up a 1 week contract at the exercise price. OptionWriter clicks on the "Contract Set" button on the Eve-Index website. 1 week later the 2 mil collateral is released automatically, unless OptionBuyer has notified of a dispute. Dispute resolution - lets park this for now, but contracts are recorded in-game so screen shots can be compared. Comments?
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.09.26 19:52:00 - [36] Originally by: Professor Bunsen Edited by: Professor Bunsen on 26/09/2007 18:54:25 OK considering collateral, let me float this proposal past the assembled brainpower of the forum. Assume that 6 long-in-the-tooth Eve players of some repute have been approved to write options at Eve-Index. Call them the Mineral Option Writers(MOWs). SampleMineral is at 4 isk on the market. Considering the historical trading range the MOW's agree that they will cover a trading range of 2-6 isk for SampleMineral. One of the MOWs, OptionWriter creates (writes) a SampleMineral Call at a strikeprice of 4. The maximum that he can lose is 6-4=2 isk. Each contract is for a million units so to create the option Eve-Index requires that he deposit 2 mil isk as collateral in order to write the options and holds that. OptionWriter goes on to offer the options for sale (at 0.34) and they are bought by OptionBuyer so he is paid 340k isk. Bad luck for OptionWriter, SampleMineral rises in price to 5 isk and is now worth 0.42 OptionBuyer could put up a sell order to sell the option for isk, but instead he decides he wants the trit, so clicks on the "Exercise Option" button on the web site. Eve-Index notifies OptionWriter that his option has been exercised by email and on the web site. OptionWriter has 1 week to deliver the required amount of SampleMineral to OptionBuyer at Jita by setting up a 1 week contract at the exercise price. OptionWriter clicks on the "Contract Set" button on the Eve-Index website. 1 week later the 2 mil collateral is released automatically, unless OptionBuyer has notified of a dispute. Dispute resolution - lets park this for now, but contracts are recorded in-game so screen shots can be compared. Comments? Couple of initial comments: 1. It's not explicit in your proposal, but I presume that the definition of range of prices is intended purely for the purposes of determining collateral - and is not intended as some means of capping exposure. Hence the need for option writers to have some decent level of reputation - as potentially they can become liable for more ISK than they have invested in collateral. If this assumption is correct then collateral could be kept reasonably low - as there'd be an additional cost to deafulting of losing an established reputation. 2. My proposal (a few posts earlier) proposed central administration of settlement. Having read your proposal I agree that direct contracting (removing the middleman) makes more sense. There'd be no need to compare screen-shots - it's possible to view other people's contracts directly ingame, so verification would be easy if ever required. The (possible) downside of this is that anaonymity of participants is removed - but as that only happens on settlement I don't see it as a big deal. 3. If the settlement period is 1 week, then auto-repayment of collateral needs to be at least a few days after that. If OptionBuyer is away for a couple of days near the end of settlement period then they could miss their chance to flag that a default has happened. You indicate that OptionWriter has a "contract set" box to tick - far more important is that OptionBuyer has a "contract accepted" box. If OptionBuyer ticks that box, then collateral can be returned to OptionWriter. If, at the end of the week, OptionBuyer hasn't ticked that box then contracts for either/both of them should be checked ingame and appropriate action taken.
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.09.26 20:05:00 - [37] There's only one potential area of dispute left - that OptionWriter claims he set up a contract while OptionBuyer claims either that the contract wasn't made or that it was made but not in accordance with the terms of the option. Resolution of that is pretty simple: OptionWriter gives the minerals/ISK to Eve-Index who then contract it to OptionBuyer in return for his minerals/ISK which is then passed back to OptionWriter. As they both agree on two things (that they have the wherewithawal to cover their side of the transaction and that no transaction has occurred) neither can have any legitimate reason not to carry this out swiftly. Working out who's at fault in such a scenario is next to impossible - as there's no way to view contracts belonging to other people unless they're in a Finished state. Screen-shots are possible in theory - however they're possible to fake. Having a relatively small number of option writers who write a substantial number of options each further decreases the need for excessive collateral: if they defualt, not only do they lose the collateral on the option they default on, but Eve-Index still holds collateral on all unexercised options written by them.
Jon Asus	Posted - 2007.09.26 22:45:00 - [38] I disapprove of FastLearner's proposal, these brokers would earn a cut from my work, why should they?
Shar Tegral	Posted - 2007.09.26 22:59:00 - [39] Originally by: Jon Asus I disapprove of FastLearner's proposal, these brokers would earn a cut from my work, why should they? The obvious response, do all the work yourself and eliminate middlemen. Otherwise, pay them for their efforts like you would want to be paid for yours. That's why they call it trade. It's A GIRL!!!!!
Jon Asus	Posted - 2007.09.26 23:09:00 - [40] I would do the middlework but what FastLearner is proposing would not allow me to do it, why use these brokers when they aren't needed?
Hexxx Minmatar	Posted - 2007.09.26 23:53:00 - [41] Originally by: Jon Asus Edited by: Jon Asus on 26/09/2007 23:44:13 I would do the middlework but what FastLearner is proposing would not allow me to do it, why use these brokers when they aren't needed? Edit: Sorry if I seem blunt but this is just another example of something I have been realsiing recently, that this section of the forums might as well be private. That a select few control practically everything and deny access to those that aren't in their club. Incorrect. Just be smart, tough, and ignore your critics. That's how us "old guard" got to be where we are today. Send me 1 trillion isk in the next 5 minutes and I'll send you my 10 Step Self-Help Guide to becoming a high roller in the wacky zany Market forum!!! Consulting, IPO Template, and Stock/Bond definitions.
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.09.27 00:16:00 - [42] Originally by: Jon Asus Edited by: Jon Asus on 26/09/2007 23:44:13 I would do the middlework but what FastLearner is proposing would not allow me to do it, why use these brokers when they aren't needed? Edit: Sorry if I seem blunt but this is just another example of something I have been realsiing recently, that this section of the forums might as well be private. That a select few control practically everything and deny access to those that aren't in their club. By brokers I assume you mean option writers? It's not the same thing as a broker. The option writer isn't charging you a cut for doing "middlework" - the nearest thing to a broker here is Eve-Index. Are you sure you understand what an option writer does? The reason they charge a fee is because they're selling you an option - something you can choose to do or not do as you see fit. They, on the other hand, are committed to fulfilling the option if you choose to exercise it. IF your complaint is that you won't be allowed to write options then your complaint isn't with what I propose - it's with the whole system. Unless you have a decent reputation - meaning you have something fairly tangible to lose if you default - then I'd assume Eve-Index would want you to provide full collateral for any options you wrote. And if you provide full collateral it ends up not being worth your while writing options in the first place. The proposal for a few select option-writers wasn't mine - it was Bunsen's (who's running Eve-Index). As it happens I agree with that suggestion - but not for the reasons you seem to believe. If you believe option writers aren't necessary then I seriously question your understanding of how this proposed market is going to work. You can't have options where both parties have optional participation in any exercising of the option - one party has to be able to fulfill the option at the other's whim. The one who has no choice in the agreement is the option writer.
Jon Asus	Posted - 2007.09.27 00:32:00 - [43] I do not disagree with the use option writers I understand the system totally, I disagree with the reasoning behind me not being allowed to be an option writer. If I am not an option writer how can I trade on Eve Index without using a middleman? I would much rather deposit in full and be allowed to be an option writer than to be forced to use someone else to write options.
Block Ukx KDM Corp Firmus Ixion	Posted - 2007.09.27 11:57:00 - [44] Originally by: Professor Bunsen Edited by: Professor Bunsen on 26/09/2007 18:54:25 OK considering collateral, ... ... Each contract is for a million units so to create the option Eve-Index requires that he deposit 2 mil isk as collateral in order to write the options and holds that. Comments? Are you asking MOWÆs to deposit 200 Mil ISK to sell 100 Mil units Tritanium? Who in the right mind would do this? I can double my 100 Mil Trit reserve with the 200 Mil collateral. I understand your concerns with defaults, but collateral is not the way to do this. You need to attract option writers not scare them away.
Block Ukx KDM Corp Firmus Ixion	Posted - 2007.09.27 12:10:00 - [45] Originally by: Jon Asus ... If I am not an option writer how can I trade on Eve Index without using a middleman? Trading options and writing options are two separate things. You are allowed to trade options without been a MOW by simply creating an EVE-index account. There is no collateral for that. The only fee I noticed is the 1% account withdrawal fee. Anyways, that's how I understood it.
Professor Bunsen Optech Scientific	Posted - 2007.09.27 22:08:00 - [46] I have been amending the software to handle contract collateral as discussed. I have had to amend some of the underlying database structure, so in short its taking a while. ETA put back from "imminent" to "soon" likely to be a week.
TheDevilsJury GoonFleet GoonSwarm	Posted - 2007.09.27 23:37:00 - [47] As far as I can see having an options market that requires collateral won't work very well as that nullifies the main advantage of option trading, that you can use options to gain great leverage. Its also very difficult to hedge an investment if your investment gets locked up by doing so. However, what would work excellently is a futures exchange. You don't have to deal with people exercising the option before expiration, so you don't need to hold the actual goods on hand. Simply use the same system that a futures trading house uses, the margin account + margin calls when necessary. It also works better with eve mechanics as it might be used to lock in mineral prices by producers whereas options are more of a speculative or hedging tool. Actually I don't see why a margin account system wouldn't work with an options exchange either.
firefly1892	Posted - 2007.11.08 14:58:00 - [48] In order to get around exercising option/put early why not simply deal with European options that can't be exercised before maturity. BTW its great that your going ahead with this, best of luck when you launch it. Why CCP didn't get into options and forward contracts is beyond me, it would make the economics side of this game that much better.
Cenzo	Posted - 2007.11.11 09:06:00 - [49] I didn't read the whole thread, way too excited to do so. Count me in on this venture, and sign me up as a market maker.
SiJira	Posted - 2007.11.12 19:31:00 - [50] this is a huge tool for the market ____ __ ________ _sig below_ devs and gms cant modify my sig if they tried! _lies above_ CCP Morpheus was here Morpheus Fails. You need colors!! -Kaemonn [yellow]Kaem
Oron	Posted - 2007.11.12 20:28:00 - [51] I appreciate the dedicated work and everything, but I think the EvE-Markets are too small, and too easy to manipulate for a option market. In real life the worst effects of options are ballanced by mere size, but what would it do in such a perfect yet small market we have in EvE?
Pang Grohl Gallente Sudo Corp	Posted - 2007.11.12 21:09:00 - [52] Originally by: Oron I appreciate the dedicated work and everything, but I think the EvE-Markets are too small, and too easy to manipulate for a option market. In real life the worst effects of options are ballanced by mere size, but what would it do in such a perfect yet small market we have in EvE? The capital and effort investment needed to manipulate the mineral market enough to make isk against an options market should be prohibitive, up to the point that enough people adopt option trading to secure their mineral trade. In my opinion "enough" would be approximately 60% of the consumers and suppliers of minerals (manufacturers, miners, & re-processors) on a constant basis. *** Si non adjuvas, noces (If you're not helping, you're hurting) Improve Share Transfers
Professor Bunsen Optech Mineral Ventures	Posted - 2007.11.12 23:14:00 - [53] This has taken far longer than I thought possible, but I'm tantalisingly close to either something or a white elephant First an update Programming for Eve Index is complete (I think ) The issue of collateral for option writers has been addressed as follows: I didn't want to set up an elite club whereby only a few of the great and good could write/create and option contract. But, I wanted no defaults when contracts were exercised as confidence in the Eve Index market is central to success. So my decision was first to set a trading range around each mineral providing a top and bottom underlying price, e.g. Trit is 2.5-4.6 This exposes a lot of the movement in the underlying mineral but sidesteps the "unlimited gains and losses" which are impossible to collateralise. Collateral for option writers (not talking about players buying and selling options here, no collateral needed for that) is set to 100% by default, but there is the facility to take a view on established "names" in the financial game. Effectively Eve-Index can take a view on players with history and reputation and require a reduced collateral %. The issue this brings up is who decides everyones collateral %, and I'm thinking some kind of virtual board might be needed to judge reputation vs default risk. Suggestions would be helpful about this. I'm currently writing the supporting pages, the tutorial, FAQ (how do you know whats a FAQ before anyones ever asked?), and guide to the interface. I'm bored and it's menial work for my planet sized brain but... Although the programming has been a mental teaser for me (only a keen amateur programmer in RL) I believe that the success or otherwise in this project lies predominantly in the marketing and explaining of mineral options to the Eve population. Again, I would value tapping into the collective brainpower of the forum on this one. I think I might need to employ a marketing man. Data. I've been so long in delivering on this that I think I've lost the attention of my data samplers. Again I need help on this, or will do before launch. If you think you could support the project by exporting trit, pye and mex data from an alt parked anywhere in the The Forge Region and FTP'ing it to the web site please let me know. Cold feet. I think the coding is sound, I've run through every permutation I can think of, I've put in defences against every anti-social trick I can think of but because there's real isk involved (!) I want it to be watertight. Again, if anyones got any software/web app QA skills and could give me some pointers I would be grateful. So much as it's not the natural thing for an instinctive loner like Bunsen to do, I need to ask for help please! Log on is here Player name is : Eveplayer Password is : pass Please give it a good kicking for me. If nothing else go look at the pretty graphs of the Jita Trit, Pye and Mex Indexes spiralling downwards!
Crazy Wong	Posted - 2007.11.13 00:22:00 - [54] A link to some info on options trading concepts in general might be beneficial (or an explanation written by you), especially if you want more people than just those people in the know about how options work to participate. My guess is that those kinds of basic concept questions are going to be your actual Frequently Asked Questions.
Titus Lewis	Posted - 2007.11.13 09:05:00 - [55] This is very impressive, Professor Bunsen.
Marq Leosi	Posted - 2007.11.23 20:32:00 - [56] Out of curiosity: - what vol are you using to price the options? Calculated historical ones? - What interest do you use in your formula as risk-free interest? - Which model do you base your calculations on? - Are you planning on moving into exotic options as well? I'm thinking knockout options as well as binaries. Great project and good luck with it! Marq
Calgorac The Arrow Project Morsus Mihi	Posted - 2007.11.24 03:28:00 - [57] rtr Latest News
Professor Bunsen Optech Mineral Ventures	Posted - 2007.11.24 19:47:00 - [58] Edited by: Professor Bunsen on 24/11/2007 19:48:03 - what vol are you using to price the options? Calculated historical ones? Calculated historical ones, 90 days data so far formula - What interest do you use in your formula as risk-free interest? 0% based on there being no risk free investment rate in Eve. - Which model do you base your calculations on? Black-Scholes - Are you planning on moving into exotic options as well? I'm thinking knockout options as well as binaries. No, TBH I'm not familiar with them, and I have my hands full with what I'm doing so far. Even if I c r a c k (stupid *** substitution) the app, the marketing is going to be challenging. - Great project and good luck with it! Thanks. Any suggestions fire away
Ufl Caldari Nucon	Posted - 2007.11.24 20:02:00 - [59] Edited by: Ufl on 24/11/2007 20:03:50 Prof. Bunsen Nucon is extremely interested in this concept, and in becoming a registered broker. The screenshot you have provided is as close to real life options contrats trading as its going to get! Do you plan on issuing in game (freeform) contracts to bind the option contracts? Best Regards Ufl Nucon Stock Exchange [OUR VISION]
Manfred Macx	Posted - 2007.11.26 11:56:00 - [60] Edited by: Manfred Macx on 26/11/2007 11:57:02 Originally by: Professor Bunsen Data. I've been so long in delivering on this that I think I've lost the attention of my data samplers. Again I need help on this, or will do before launch. If you think you could support the project by exporting trit, pye and mex data from an alt parked anywhere in the The Forge Region and FTP'ing it to the web site please let me know. If you need data on historical mineral prices, why not get them from eve-central.com? Look at http://eve-central.com/home/xml_datafeed.html. As far as I can understand you should be able to get all uploads ever made to eve-central.com in CSV-format. :.:: brasse

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