Introducing the OIX

Starting tonight MPEx publishes an aggregate options sentiment index. It looks something like the illustration on the left.

The first value reflects the market sentiment as to the likely BTC/USD evolution. It's calculated as follows : for every option sold by the MPOE bot (but not bought, only sold) during the past 7 days (604`800 seconds) the break even point is calculated. For instance if Calls struck at 35 are sold for .2 BTC each, then the break-even would be 35 / .8 = 43.75ⁱ. All these break-evens are multiplied with the traded volume, added together (Calls and Puts indiscriminately) and the result is divided by the total volume. Thus the figure reflects a volume weighted average of the break-even prices of all types of options bought by the public during the past week.

The second value simply reflects that total volume. In our example case options worth ~3`918 BTC were bought by the public, and so the ~31.25 BTC/USD rate has behind it the weight of that much investment. This is real investment (actual sums paid) rather than notional - if the average cost of an option is .1 BTC then the fate of about 40`000 BTC is controlled by the options backing the OIX.

The exact utility of this index is left as an exercise for the reader, but here's a quick and dirty plot of the historical OIX versus the historical BTC prices :

UPDATE : At the requests of our ever demanding userbase :

1. Added the above histograph of OIX vs USD/BTC.
2. Lost most of the decimals, in spite of the intrinsic coolness of having cents of a satoshi on display.
3. Added Call / Put price separation on the first line. The first value in the paranthesis reflects the price implied by Calls only. The second value in the paranthesis reflects the price implied by Puts only.
4. Added Call / Put volume separation on the second line. The first value in the paranthesis is the percentage of the total volume which went to Calls. The second value in the paranthesis is the percentage of total volume which went to Puts. These should in general add up to about 100 or so.

Nifty, huh.

1. The value of a Call option is (rate - strike) / rate. This has to equal the cost. Thus,
   (rate - strike) / rate = cost
   rate - strike = rate * cost
   strike = rate * (1 - cost)
   rate = strike / (1 - cost).
   Since in our example the strike is 35 and the cost .2, we come to the numeric application
   rate = 35 / (1 - .2) which works out to 43.75.

   In the case of Put options on the other hand,
   (strike - rate) / rate = cost
   strike - rate = rate * cost
   strike = rate * (1 + cost)
   rate = strike / (1 + cost).
   Therefore a Put struck at 35 and bought for .2 would imply a BTC/USD rate of
   rate = 35 / (1 + .2) = 29.1(6).
   [↩]