Selling call options on your bitcoins

xinxi

newbie

Activity: 28

Merit: 0

Quote from: redHeadBlunder on October 08, 2014, 10:57:28 PM

Quote from: xinxi on October 08, 2014, 05:25:46 AM

Quote from: money420weed on October 07, 2014, 11:34:12 PM

Quote from: iruu on October 07, 2014, 05:07:44 PM

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

You do not necessarily need to hedge your exposure to volatility when selling an option. This is only true for entities that trade options professionally to make money off of the changes in pricing of options. There are plenty of "non professional" reasons to trade options (for example to speculate, or to generate additional income).

In order for an options exchange to work properly, it will need to have some kind of central clearing house that guarantees each trade, and the clearing house will need to demand that the other side of the trade put up sufficient collateral (bitcoin/fiat to cover a short position being exercised).

Our platform requires the sellers to have enough margin (collateral) so that they will be able to pay the buyers at expiration.

I don't think this would be necessary to have 100% collateral for shorter term option sales. The reason for this is because even though 1 BTC is to be delivered upon expiration the net value of an option may only be .5 BTC if the price of bitcoin is twice that of the strike price. The result would be that the buyer of the option would deliver the cash to the seller's account and the cash would be used to purchase the amount of bitcoin the account is short

In Coinut, we currently provide binary options, and the payoff is 0.01 BTC. The seller does not need 100% collateral (0.01 BTC) because he will get some premium from the buyer, which can then be used as the collateral. For vanilla options, the situation is a bit different as the payoff depends on the spot price at expiration, and thus it is not determined beforehand. Again, we don't need 100% collateral (as we don't know how much it is). We liquidate the seller's positions when he is short for collateral (this is essentially a margin call).

redHeadBlunder

member

Activity: 81

Merit: 10

Quote from: xinxi on October 08, 2014, 05:25:46 AM

Quote from: money420weed on October 07, 2014, 11:34:12 PM

Quote from: iruu on October 07, 2014, 05:07:44 PM

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

You do not necessarily need to hedge your exposure to volatility when selling an option. This is only true for entities that trade options professionally to make money off of the changes in pricing of options. There are plenty of "non professional" reasons to trade options (for example to speculate, or to generate additional income).

In order for an options exchange to work properly, it will need to have some kind of central clearing house that guarantees each trade, and the clearing house will need to demand that the other side of the trade put up sufficient collateral (bitcoin/fiat to cover a short position being exercised).

Our platform requires the sellers to have enough margin (collateral) so that they will be able to pay the buyers at expiration.

I don't think this would be necessary to have 100% collateral for shorter term option sales. The reason for this is because even though 1 BTC is to be delivered upon expiration the net value of an option may only be .5 BTC if the price of bitcoin is twice that of the strike price. The result would be that the buyer of the option would deliver the cash to the seller's account and the cash would be used to purchase the amount of bitcoin the account is short

xinxi

newbie

Activity: 28

Merit: 0

Right. We currently provide binary options only. The seller needs to reserve the maximum possible payoff as the margin. We are still working on vanilla options. As you said, we will probably require much more margin than normal vanilla options.

SunBin

full member

Activity: 151

Merit: 100

Quote from: xinxi on October 08, 2014, 05:25:46 AM

Quote from: money420weed on October 07, 2014, 11:34:12 PM

Quote from: iruu on October 07, 2014, 05:07:44 PM

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

You do not necessarily need to hedge your exposure to volatility when selling an option. This is only true for entities that trade options professionally to make money off of the changes in pricing of options. There are plenty of "non professional" reasons to trade options (for example to speculate, or to generate additional income).

In order for an options exchange to work properly, it will need to have some kind of central clearing house that guarantees each trade, and the clearing house will need to demand that the other side of the trade put up sufficient collateral (bitcoin/fiat to cover a short position being exercised).

Our platform requires the sellers to have enough margin (collateral) so that they will be able to pay the buyers at expiration.

You will probably need 1:1 collateral due to highly volatile nature of btc.

xinxi

newbie

Activity: 28

Merit: 0

Quote from: money420weed on October 07, 2014, 11:34:12 PM

Quote from: iruu on October 07, 2014, 05:07:44 PM

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

You do not necessarily need to hedge your exposure to volatility when selling an option. This is only true for entities that trade options professionally to make money off of the changes in pricing of options. There are plenty of "non professional" reasons to trade options (for example to speculate, or to generate additional income).

In order for an options exchange to work properly, it will need to have some kind of central clearing house that guarantees each trade, and the clearing house will need to demand that the other side of the trade put up sufficient collateral (bitcoin/fiat to cover a short position being exercised).

Our platform requires the sellers to have enough margin (collateral) so that they will be able to pay the buyers at expiration.

money420weed

member

Activity: 78

Merit: 10

Quote from: iruu on October 07, 2014, 05:07:44 PM

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

You do not necessarily need to hedge your exposure to volatility when selling an option. This is only true for entities that trade options professionally to make money off of the changes in pricing of options. There are plenty of "non professional" reasons to trade options (for example to speculate, or to generate additional income).

In order for an options exchange to work properly, it will need to have some kind of central clearing house that guarantees each trade, and the clearing house will need to demand that the other side of the trade put up sufficient collateral (bitcoin/fiat to cover a short position being exercised).

iruu

full member

Activity: 148

Merit: 100

I don't think option trading not on full, liquid exchange can work well.
Selling options is shorting volatility (a bet that implied vol will be higher than realized vol), which needs to be hedged. On exchanges, hedging automatically provides collateral, ie. sold atm call option for 1 btc is perfectly hedged by a ~0.5btc long, so even at impractical 100% collateral, you only need 0.5 btc more. The total is always 1btc.

On a purely options exchange with 100% collateral, you need 1 btc + enough collateral to go long 0.5 btc on another exchange, and in the worst case, enough to go long 1 btc. That's two times more expensive and requires additional hassle.

xinxi

newbie

Activity: 28

Merit: 0

Guys, I need a market maker to provide liquidity. I cannot do that by myself because it violates our rules.

xinxi

newbie

Activity: 28

Merit: 0

Thanks Bogleg, I don't mind disclosing my identity and location information if people need. I am a graduating PhD student in a prestigious university of Singapore. It won't make much sense for me to run away. And I guess this will work out better than using a Sr. account here, right?

Thanks to Albert, yeah, we just launched it yesterday. We are still working on a more appealing interface. But we want to attract the first bunch of users at this moment to attract some VCs.

AlbertAbbey

newbie

Activity: 5

Merit: 0

is the site officially launched? Better add some color to it too.

Bogleg

full member

Activity: 185

Merit: 100

Quote from: xinxi on October 07, 2014, 04:34:58 AM

Guys, you may want to have a look at my website https://coinut.com. It's a platform for you to exchange options. To ensure the fairness of the platform, we strictly disallow any members in the company to participate in any trading activities using this platform. Our profit comes from commissions only.

You probably need to find someone with trusted status to endorse your platform or have him hold enough collateral that we know you won't run away with customer money.

xinxi

newbie

Activity: 28

Merit: 0

Guys, you may want to have a look at my website https://coinut.com. It's a platform for you to exchange options. To ensure the fairness of the platform, we strictly disallow any members in the company to participate in any trading activities using this platform. Our profit comes from commissions only.

Fray

full member

Activity: 209

Merit: 100

Quote from: right wing authoritarian on August 12, 2014, 12:31:12 AM

Quote from: Keyara on August 10, 2014, 04:05:02 PM

Quote from: Mobius on August 10, 2014, 04:00:00 PM

Quote from: right wing authoritarian on August 05, 2014, 11:08:33 PM

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

I would be very surprised that the buyer would decline escrow for this kind of transaction unless the call option was for well under 1 BTC. The buyer would not only need to trust that you would honor your agreement, but also trust that you would not just keep his $1,100 or however much money (per BTC) when he sends it to you when he exercises his option.

He is making false claim for a deal.

He needs to post the blockchain transaction and deal to prove otherwise.

How much BTC would you be willing to bet that the claim is false?

I would bet .01 that it is true but there is really no way of knowing for sure. The Op could easily fake a TX and a 2nd person to do the option with. I think a lot of people are watching this thread for educational purposes as long term options for bitcoin could dramatically change the bitcoin related economy.

right wing authoritarian

member

Activity: 73

Merit: 10

Exactly as Mobius says.

In addition if I did post the details there would be only one outcome. People would argue as to whether the option premium is too low or too high. People would claim I was an idiot for selling too cheap or that the buyer paid too much or they would still claim that I was making it up. In hindsight it was a mistake to inform the forum that any deal had taken place. There are probably lots of OTC derivative transactions on Bitcoin that nobody is aware of for exactly these reasons.

Mobius

hero member

Activity: 988

Merit: 1000

Quote from: Keyara on August 10, 2014, 04:05:02 PM

Quote from: Mobius on August 10, 2014, 04:00:00 PM

Quote from: right wing authoritarian on August 05, 2014, 11:08:33 PM

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

I would be very surprised that the buyer would decline escrow for this kind of transaction unless the call option was for well under 1 BTC. The buyer would not only need to trust that you would honor your agreement, but also trust that you would not just keep his $1,100 or however much money (per BTC) when he sends it to you when he exercises his option.

He is making false claim for a deal.

He needs to post the blockchain transaction and deal to prove otherwise.

I don't think a TX ID would really prove anything, nor would the counter-party confirming they were on the other side of the trade. The OP could easily just find a TX that matches the amount he is claiming, and he could easily use a 2nd account that the OP controls to claim to be on the other side of the trade. I really don't think he is getting any additional trust from this deal so proving the TX is really not relevant.

right wing authoritarian

member

Activity: 73

Merit: 10

Quote from: Keyara on August 10, 2014, 04:05:02 PM

Quote from: Mobius on August 10, 2014, 04:00:00 PM

Quote from: right wing authoritarian on August 05, 2014, 11:08:33 PM

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

I would be very surprised that the buyer would decline escrow for this kind of transaction unless the call option was for well under 1 BTC. The buyer would not only need to trust that you would honor your agreement, but also trust that you would not just keep his $1,100 or however much money (per BTC) when he sends it to you when he exercises his option.

He is making false claim for a deal.

He needs to post the blockchain transaction and deal to prove otherwise.

How much BTC would you be willing to bet that the claim is false?

Keyara

full member

Activity: 174

Merit: 100

Quote from: Mobius on August 10, 2014, 04:00:00 PM

Quote from: right wing authoritarian on August 05, 2014, 11:08:33 PM

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

I would be very surprised that the buyer would decline escrow for this kind of transaction unless the call option was for well under 1 BTC. The buyer would not only need to trust that you would honor your agreement, but also trust that you would not just keep his $1,100 or however much money (per BTC) when he sends it to you when he exercises his option.

He is making false claim for a deal.

He needs to post the blockchain transaction and deal to prove otherwise.

Mobius

hero member

Activity: 988

Merit: 1000

Quote from: right wing authoritarian on August 05, 2014, 11:08:33 PM

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

I would be very surprised that the buyer would decline escrow for this kind of transaction unless the call option was for well under 1 BTC. The buyer would not only need to trust that you would honor your agreement, but also trust that you would not just keep his $1,100 or however much money (per BTC) when he sends it to you when he exercises his option.

right wing authoritarian

member

Activity: 73

Merit: 10

Quote from: TwinWinNerD on August 05, 2014, 05:50:24 PM

Quote from: JackTackett on August 05, 2014, 05:37:18 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Curious as to how you all priced the option? What sort of assumptions etc. I am assuming given the unknowns using something like Black-Sholes would not be useful.

Thanks,
Jack

If you are intersted in pricing BTC options, this thread could be a good read for you!

https://bitcointalksearch.org/topic/options-trading-thread-557743

I just accepted a bid. I did use Black-Sholes to check that the bid was reasonable, the problem is working out what kind of volatility to use. Current volatility is lower than historical volatility. So it depends on what you believe about the future volatility of bitcoin. My view is that past volatility is more to do with Gox than bitcoin and Gox is gone thankfully.

Also the trade was purely trust based (offered escrow but for the amounts involved the buyer was unconcerned). In the long term this is the only way any business can be sustained. Look at services like "spendbitcoins" he has been going since very early days and never ripped anyone off. I would be confident to make a million dollar trade with him because of his record. I would be willing to take the risk of a small trade with someone new to see where it goes and in that fashion one can build trust over time. Any scam involving options can only last until someone tries to exercise. So as long as people are trading relatively short dated contracts a scam would not be able to be sustained. The main issue is the risk that an option writer dies or goes broke and that is where collateral and escrow will become important.

santaClause

full member

Activity: 183

Merit: 100

Quote from: galbros on August 05, 2014, 04:06:24 PM

Quote from: right wing authoritarian on August 03, 2014, 06:45:30 AM

I just sold a call option to a forum member. Deal was by private negotiation. It is not that hard.

Excellent. I agree the deal is not hard, the only issue is their confidence in you to deliver. I know you don't want to give away any details, but in general terms how you handled the "trust" aspect of the arrangement would be helpful.

Good Luck!

You should really use escrow for these types of long term deals.

I would be like to know how much you sold the option for and what the terms of payment are.

Topic: Selling call options on your bitcoins (Read 4337 times)