Novel short-term option trading system
AssigneeMicroTick, LLC
InventorsMark Daniel Jackson, David James Norman
Life of this patent
Estimating the term…
Abstract
Option contracts are traded by valuing an option that has at least one of a) strike price or b) expiration time unknown at the time the option is valued. The previously unknown values of the option are assigned at the time or after the time the trade is completed. An implied underlying price stream is generated from the option prices through the use of feed back between market participants and the marketplace. The resulting system is useful in trading option contracts of short time duration.
Claims14
1) A method of creating an implied underlying price stream through a processor with external communication from markets, consisting of a sequence of arbitrary reference prices, the method comprising:
- a) providing on the processor an arbitrary reference price to market participants, b) allowing the market participants in communication with the processor to price call and put option contracts for an underlying instrument using the arbitrary reference price as a strike price for the options, c) the market, through the processor, deriving an indicated call price and an indicated put price from one or more prices that the market participants set, and d) the market, through the processor, adjusting the arbitrary reference price by a process selected from the group consisting of:
- i) the market, through the processor, raising the arbitrary reference price if the indicated call price is greater than the indicated put price;
- ii) the market, through the processor, lowering the arbitrary reference price if the indicated put price is greater than the indicated call price;
- and iii) the market, through the processor, leaving the arbitrary reference price the same if the indicated call price is equal to the indicated put price;
- and the price stream allowing the processor to confirm a contract with the market and register within the market that contract as enforceable.
2) A method of creating an implied underlying price stream in a market communicating through processors, the implied underlying price consisting of a sequence of arbitrary reference prices, the method comprising:
- a) a first processor in the market providing an arbitrary reference price to market participants, b) the market communicating through processors allowing market participants to price derivative contracts based on the arbitrary reference price, and c) adjusting the arbitrary reference price in response to the activity of the market participants;
- wherein the market communication through processors allows user on a processor within the market to confirm a contract within the market and register that contract within the market as enforceable.
5) A method facilitating the settlement of standardized option contracts traded by time duration or floating strike price comprising:
- a) using a market connected by at least two processors in communication connection with each other to deliver the option contracts into an intermediate derivative contract for which there exists a secondary market in a network comprising the at least two processors or fixed expiration time identified in the option contract, b) tracking open interest of participants in the market in the intermediate derivative contracts, and c) providing summary position information of the market participants to a centralized clearing entity to establish an executable option contract;
- and wherein a user in communication connection with the market is allowed by the market to enter the executable option contract.
Dependencies are inferred from the claim text.