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Zydrine Options – (February 2014)

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Block Ukx
420 Enterprises.
#81 - 2013-11-29 01:43:44 UTC
Vaerah Vahrokha wrote:
Block Ukx wrote:


Now getting back on topic, I welcome ideas on how to price options.



There are several possible points of improvement.

- Have you checked Black-Scholes options pricing model?

- Options are a marketplace. You have an exchange, make the connection.

- Options should not be set by you, but by the market. I mean, if someone wants to buy an option for 800 ISK he should be able to (assuming he finds a willing seller). Of course an option placed in an easy place has to give very different revenue and have a well different cost compared with one in an "odd place".

I want to stress point 2. You'll never depart from the "scammer" or at least "in bad faith" label if you play the market maker and place yourself in an utterly dominant position.




Those are excellent points. I'll read more on the Black-Scholes pricing model.


What about auctioning options? Would that work? For instance, offer 100 option Zydrine contracts at 900 and let people bet for the price.
Mestophoclies
Royal Amarr Institute
Amarr Empire
#82 - 2013-11-29 01:49:33 UTC  |  Edited by: Mestophoclies
While I appreciate the attempt to make options more understandable by calling this insurance, I think it actually confuses people about what they are buying, and we should call it what it is, namely a covered call option.

More specifically, these are significantly out of the money call options.

Significantly out of the money call options are more useful as a speculation instrument than an insurance policy, because they essentially act as leverage.

If a manufacturer wanted to protect himself against rising zydrine prices in a real world market, they would purchase a call option with a strike price near market value, and pay the premium as the insurance.

As to the question of how to price the options, options are usually priced on a per unit basis. Pricing your 1500 contract like that would imply a premium of 100 isk/unit paid, which is roughly 14% at today's prices.

I also think it is important to realize that as the seller of the options, you do not take on any risk of loss that involves zydrine going above your strike price. What you are doing by selling these options is limiting your potential upside in exchange for some additional profit if zydrine stays below your strike price.

Your risk exposure is limited to if zydrine falls.

For example, if I sold a covered call contract like this, I would pretty happily take the 100isk/unit risk premium at the current market value. However, I don't have the credibility that you do so nobody would send me isk.

I think you actually would play a much better role (and acheive higher profits) if you continued in your role as being the marketplace. I will write one month zydrine call options with a strike price at or below current jita market prices at 100isk/unit all day, and deposit the zydrine with Block as a third party, and let him earn some percentage.
mynnna
State War Academy
Caldari State
#83 - 2013-12-03 05:02:37 UTC
So, anyone checked if eve-bet is giving odds on Block letting this thread fade away and die? What about him referring back to this thread at an unspecified future date to say "I was totally right" if CCP ever makes enough of a mechanical change for it to come true?





Actually, that last one's a gimme anyway.

Member of the Goonswarm Economic Warfare Cabal
Tsibelman
Garoun Investment Bank
Gallente Federation
#84 - 2013-12-03 16:19:07 UTC
Vaerah Vahrokha wrote:
Grozen wrote:
[quote=Vaerah Vahrokha]As my Twitter followers know already, I have published a Zydrine market analysis.

It talks about the market including if / where it'd be safe(r) to buy.



You would need to implement a cache analysis application that stores the single orders volumes, matches them, allows you to plot the various volumes with their distribution on the scale of price



Funny you mentioning this , because this is very relate to that I do right now. I already have a bare bone application working that allows me to get actual traded volumes for individual buy and sell orders with their respective price, if somebody have some interesting ideas for this data we can talk.
Vaerah Vahrokha
Vahrokh Consulting
#85 - 2013-12-03 16:26:03 UTC
Tsibelman wrote:
Vaerah Vahrokha wrote:
Grozen wrote:
[quote=Vaerah Vahrokha]As my Twitter followers know already, I have published a Zydrine market analysis.

It talks about the market including if / where it'd be safe(r) to buy.



You would need to implement a cache analysis application that stores the single orders volumes, matches them, allows you to plot the various volumes with their distribution on the scale of price



Funny you mentioning this , because this is very relate to that I do right now. I already have a bare bone application working that allows me to get actual traded volumes for individual buy and sell orders with their respective price, if somebody have some interesting ideas for this data we can talk.


I could try and find and then point you to a massive thread totally devoted at volumes trading. However it's in Italian, so it could be useless to you.

EvE Online portal | EvE markets tutorials
Tsibelman
Garoun Investment Bank
Gallente Federation
#86 - 2013-12-03 16:49:23 UTC
Appreciate if you send me a link I can always try Google translate
Block Ukx
420 Enterprises.
#87 - 2013-12-09 16:11:55 UTC  |  Edited by: Block Ukx
Mestophoclies wrote:
While I appreciate the attempt to make options more understandable by calling this insurance, I think it actually confuses people about what they are buying, and we should call it what it is, namely a covered call option.

More specifically, these are significantly out of the money call options.

Significantly out of the money call options are more useful as a speculation instrument than an insurance policy, because they essentially act as leverage.

If a manufacturer wanted to protect himself against rising zydrine prices in a real world market, they would purchase a call option with a strike price near market value, and pay the premium as the insurance.

As to the question of how to price the options, options are usually priced on a per unit basis. Pricing your 1500 contract like that would imply a premium of 100 isk/unit paid, which is roughly 14% at today's prices.

I also think it is important to realize that as the seller of the options, you do not take on any risk of loss that involves zydrine going above your strike price. What you are doing by selling these options is limiting your potential upside in exchange for some additional profit if zydrine stays below your strike price.

Your risk exposure is limited to if zydrine falls.

For example, if I sold a covered call contract like this, I would pretty happily take the 100isk/unit risk premium at the current market value. However, I don't have the credibility that you do so nobody would send me isk.

I think you actually would play a much better role (and acheive higher profits) if you continued in your role as being the marketplace. I will write one month zydrine call options with a strike price at or below current jita market prices at 100isk/unit all day, and deposit the zydrine with Block as a third party, and let him earn some percentage.




You bring some excellent points and I wish to change the current offer. I will change the title to Zydrine options to reflect the change.



In the new offer, I will auction options with a strike price equal the current market price of Zydrine (details below). People will "bet" for buying the Zydrine option in an auction. The starting bet for a 100,000 Zydrine option is 10 ISK. The auction will happen in the Minerals and Manufacturing chat channel around 02:00 Tuesdays eve time. The expiration date on the options will be the end of the next month. For instance, options auction on December 2013 will expire Feb 28, 2014.


CONTRACT - Zydrine February 2014 Option

SIZE
100,000 units

EXPIRATION DATE
Feb 28, 2014

STRIKE PRICE
The strike price is the average price of the top 5,000,000 units buy and sell Jita offers at the time of the auction. For example, the current Zydrine price at the moment I typed this post is 709.50 ISK.




Hope you join us tonight.
Block Ukx
420 Enterprises.
#88 - 2013-12-09 16:51:04 UTC
mynnna wrote:
So, anyone checked if eve-bet is giving odds on Block letting this thread fade away and die? ...



The offer has been modified, so not sure how this affect your bet. What do you think of the new offer?
Block Ukx
420 Enterprises.
#89 - 2013-12-10 02:37:31 UTC


Tonight's 10 Zydrine Option contracts winning bid was from Yutte Harlamek. @ 1.6 M per contract.


Next auction 12/17 02:00 eve time
Block Ukx
420 Enterprises.
#90 - 2013-12-13 02:33:50 UTC


Don't hesitate to express your ideas on options.
Vaerah Vahrokha
Vahrokh Consulting
#91 - 2013-12-13 07:58:33 UTC
I think you are improving your proposals but still need to work on the immediacy of the offer and on the "tangibility" of it.

I mean, even I who actually trade in RL don't deal with options because they are a further "step up" in the trading complexity (I am happy with what I get with traditional trading already).

The typical EvE player is not a trader at all, so going even further and offer options is really going to be a though concept for them to swallow.

You should "dress" them with something easily understood and - most of all - seen as useful and profitable, something that is "stupid to say no to".

I.e. I always wanted to trade futures, another advanced trading concept. I found a select, small number of people who do buy / sell them (for up to 5 billions a person) as long as I make them super-understandable and obvious to use.

I.e. I have sold a good number of items for today's jita sell - buy price with the delivery of items today and payment 1 month later, regardless of what the product will cost by then. That's a forward contract, just made in terms the EvE player can understand.

EvE Online portal | EvE markets tutorials
Block Ukx
420 Enterprises.
#92 - 2013-12-17 02:40:00 UTC
VV,
thanks for your input.




Tonight's Zydrine Options @ 710.50 10 options for bid sold for 1.12M