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PLEX Options?
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Leida FireEye
Iron Eagle Industries
#1 - 2016-08-13 18:38:26 UTC  |  Edited by: Leida FireEye
Anyone interested in buying call option contracts on PLEX?

If you're not familiar with options see this https://en.wikipedia.org/wiki/Call_option to understand why you might want or not want options.

I'm open to negotiation on terms. If you want to keep it simple here some suggested terms based on the current price of 1 PLEX (13-Aug-2016):

  • Period 2 wk, strike 1.05b, premium 30m
  • Period 2 wk, strike 1b, premium 60m
  • Period 2 wk, strike 950m, premium 100m

    • Is it possible for me to cancel the contracts or just not create them after you send me money? Yep. You're trusting me not to do that. If collateralizing the premium is the only thing stopping you, reply and let me know so I can judge how big the demand for that is and look into if it's a big problem for this business model.

    If this goes well I may sell put options in the future, but for now I'm sticking to calls.

    Edit:
    So what's this look like in practice? Here's what I imagine:
    The buyer contacts me in game and we discuss terms. The buyer sends me agreed price for the option, and I create a 2 week (or other term) private item contract containing a PLEX at the agreed price. The buyer then has the option to exercise at any point in within the term.
    virm pasuul
    Imperial Academy
    Amarr Empire
    #2 - 2016-08-17 11:36:58 UTC
    I know nothing about call options.

    Is it at all significant that your options don't add up to the same valuation of a PLEX?

    Period 2 wk, strike 1.05b, premium 30m
    cost of plex = 1.08B
    Period 2 wk, strike 1b, premium 60m
    cost of plex = 1.06B
    Period 2 wk, strike 950m, premium 100m
    cost of plex = 1.05B

    Logically if I believe the cost of plex is going to go up I should choose the third option?
    The only reason I can think of is to encourage the higher premium if this were a scam?
    Perhaps there is something I'm missing?
    Tipa Riot
    Federal Navy Academy
    Gallente Federation
    #3 - 2016-08-17 12:19:36 UTC
    I don't think this works in the EvE economy, as there is no way to go short (as a balance). Beside the fact that there is no trust beyond full collateral.

    I'm my own NPC alt.
    Do Little
    Bluenose Trading
    #4 - 2016-08-17 15:18:17 UTC
    Eve has no mechanism to support an options market (or other securities market).Without that, there can be no price discovery (anyone remember 2008 and CDOs?) Without a market (and puts) you can't use them as hedges or setup common strategies like spreads.

    Real option markets work well because they are cheap and liquid - the one proposed is neither, nor is there any guarantee that the call is covered. Personally, I will look for lower risk investments.
    Leida FireEye
    Iron Eagle Industries
    #5 - 2016-08-17 23:25:22 UTC
    virm pasuul wrote:


    Is it at all significant that your options don't add up to the same valuation of a PLEX?


    I consciously didn't bother with adding them up because I wanted those to serve as starting points for negotiation, not absolute prices. Since this hasn't been tested before (AFAIK) I didn't have a good reference for what fair prices would be. I based my estimates on intrinsic value + recent volatility.

    virm pasuul wrote:

    Logically if I believe the cost of plex is going to go up I should choose the third option?


    Depends on how much certainty you have in your PLEX price estimate. If you are completely wrong about where the price will be in 2 weeks your loss is never more than the cost of the option, which is where cheap options can gain traction. This gets backs to the crux of EVE - risk versus reward. Low cost = low risk and low reward.

    Tipa Riot wrote:

    I don't think this works in the EvE economy, as there is no way to go short


    I agree that this limits the usefulness of options as oppose to the real market, but I am not convinced it makes them completely unworkable. Options, after all, have value only because they can be exercised, which is possible through the contract system.

    Do little wrote:

    nor is there any guarantee that the call is covered.


    I should have been clearer about how I imagine this looks in practice - the PLEX would be part of the contract I create to the buyer of the option. I expect any dishonesty on my part would quickly be reported on this thread. Without a "first buyer" we're still in untested territory and I don't see an easy solution to that. If I were trying to scam I'd pose as a buyer with an alt.

    As noted earlier the maximum loss to an option buyer is the cost of the option.
    Careby
    #6 - 2016-08-18 10:24:51 UTC
    I have always been interested in options and futures trading. And I think they would be great additions to EVE, both for hedging an d investment purposes, as well as for outright gambling, which is a favorite pastime for a lot of players. A year ago I was trying to come up with a workable system for an exchange that would guarantee option contracts and allow anyone to buy or sell options. The stumbling block I could not get past was trust. There was no way I would have the required level of trust to be accepted as the counterparty for the transactions, and there would not be enough profit per transaction to interest a "trusted third party".

    For options to work, the risk needs to be reduced to only the price movement of the underlying item. Any perceived risk of non-performance on the part of the buyer or seller needs to be removed from the equation. That's the challenge.