MPEx BTC / USD options denomination change

Friday, 22 March, Year 5 d.Tr. | Author: Mircea Popescu

Currently a MPEx option reads something like O.BTCUSD.C090T. The naming scheme is explained here. Of interest in this discussion is the numeric part : the three digits work as a AB.C dollar amount, and so 090 translates to 9.

This scheme seemed largely sufficient back when BTC was ~5 and it was being introduced : if BTC falls further it will allow fractionary striking ; if BTC rises to its all time high and beyond there's plenty of room to accomodate 99 dollars in there.

This scheme worked great all through the Summer of 2012, when BTC was wallowing around 2 and .2 strikes were great to have. This scheme worked great as BTC recovered to 15, and so for the first time in an eternity of about nine months the first digit was no longer 0, but 1! Then next month (where by month we mean three weeks) it was 2. Nowadays it's mostly 7, if we go by volume.

It's really been an incredible ride, this year, at least from the perspective of managing Bitcoin's options market :

  • January saw options in the 20 - 35 strike range added towards the end of the month, which temporarily dented, but certainly didn't kill the rally. Fraction strikes which were previously available (so you could buy Calls or Puts for 18, 18.5, 19 and 19.5 dollars) went away.
  • February saw the introduction of option lines in the 37 - 75 strike range, and the move to a step of 2 dollars (so you could buy Calls or Puts for 19 or 35 but not 20 or 34).
  • March saw the 75 line becoming pretty much ATM for Calls.

When originally introduced, the 20 dollar limit seemed good for a year, at more than 3x the spot value. It was good for maybe nine months. The subsequent 35 limit seemed good for a little bit - to bridge us until the market stabilises. It was good for three weeks, and the market didn't stabilise. The insanely high 75 cap introduced in February was blown within... another three weeks.

This sort of massive change in the underlying reality will require some refactoring of our means of representing it. Consequently, the BTC / USD option MPSICs will be changed as follows :

"O.USD." + {C,P} + 3{0..9} + {T,N}

So, O.USD.P173T would be a Put option struck at 173 and expiring the current month whereas O.USD.C422N would be a Call option struck at 422 and expiring the next month.

This new naming convention has the practical advantage that it is shorter (13 instead of 17 characters) while still retaining the same information as before (minus the fact that MPEx deals in BTC, but I guess that's public knowledge by now). It has also the advantage that it won't spectacularly break programatic interfacing with MPEx (seeing how if a bot somewhere thinks 750 means 75 there may be some problematic trades entered). There are three digits worth of space, which should bridge us until BTC reaches close to 1k per. I hope for everyone's sake that won't be happening this year.

It's the intention to offer strikes from 20 to 200 at a step of 3 via the MPOE bot (so 20, 23, 26 etc). This can be easily expanded even during the month if need be.

All this will go into effect at the next exercise date, which is March 29th. Outstanding N options at that time will be converted to the closest strike most convenient for the holder (so 21 long Put / Short Call becomes 23 etc), just like last month. Please note that while the bot still quotes outgoing strikes for the sake of convenience (so the code doesn't have to be modified midmonth), positions opened in these after this point will not be honored but simply refunded as BTC originally paid - so no, buying 21s now is not a cheap way to get 23s in a week.

I guess all things considered these are the best kind of problems to have. Let's hope we somehow survive.

Category: MPEx
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2 Responses

  1. smickles`s avatar
    Sunday, 24 March 2013

    /me furiously updates code

  2. Mircea Popescu`s avatar
    Mircea Popescu 
    Monday, 25 March 2013

    Meanwhile BTC furiously updated price :p

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