BetaExoticBets

Reply from John Ansbacher to enquiry about offering Close of Market bets:

The reason that we opted for this expiry structure is that it allows people the flexibility to set the expiry to any time (within the boundaries offered) that they like. I can see however that if, and no decision has been made on this yet, intraday bets are not offered on Indices some clients may be put off.

A close of the day bet would not be hard for us to implement and I think it is a good idea. Once we have gone live and had some time to assess things I think we will do that. Currently we have 2 lists of tasks, pre-live and post-live. I am going to put it on the post-live list as the pre-live list is too long and we want to launch asap.
 
I've had a look and I'm not impressed. I haven't taken the time to look at the IV or work out FV for these instruments. They are probably pricing at FV at the moment but as soon as they go live they will bid these thigns up so much as clients can only buy the instruments they have. This is their way of getting around being FSA regulated as you know you potential loss up front from buying these derivatives.
The website is very basic, and I fear they will have a high rejection rate. They might hedge off their exposures but I dont think will be the case as the transaction costs for this would defo make a big dent in profit if people are trading the small sizes quoted on this site so far. I think they are simply laying all the positions in the hope that clients are wrong.
 
You are very cynical.

I have not seen anything more than 42 bps above FV today (or 53 below) and am well up again. Only doing the FX ones today as the vols for t0 are accurately procurable. Index ones look reasonable on iterating out IV but not my bag (except for a punt).

I ran a script which tried to buy bets very fast at the previous tick's price sending the request to their server the same 100th of a second that the price moved in my favour. I picked up 4 out of 32 attempts at the previous tick's FV for a mean marked to model p&l of 3.64% on some high gamma bets. The others were filled at the new tick's FV so it is not a long term strategy unless incorporated as an execution method in conjunction with another strategy for which the new tick's price is fine.

I am having a lot of fun with it., more product and versatility than the existing vendors. If you want a serious exotic option dealing platform this is not it but for some flexible structures with real time pricing think that this is better than any other product out there.

Robertral, you and I should set up our own platform based on the most stringent of specs. I would take more from these guys than the others but give it a more institutional feel. ;-)

NQR
 
Reply from John Ansbacher in relation to query about not being able to sell back bets earlier than a day.

Intraday FX bets are already available with expiry as short as 10 minutes so it is easy to set them to any time you like from 10 min to 30 day (depending on the bet type).

The logic behind the limitation on sellbacks to >24 hours was as follows: For FX bets we offer intraday already (and for the indices we will in due course), the stock bets are only longer term as they are not very liquid so it does not make sense to offer these in high frequency. Adding the sell back feature at the time of purchase is equivalent to offering a high frequency bet.

On this basis we felt that fx can be done short term without the need for sell-backs but if it was a longer term bet we wanted to provide that choice. For the stock bets we want to limit this ability to prevent market manipulation by market makers who could otherwise use illegal techniques to profit in an unhedgable (for us) way. Does this make sense?

When we reduce the minimum expiry for the indices we will review the sell back time limitation policy.
 
10 mins is a long time in any market if you get it wrong.

A very, very , very , basic requirement as far as I am concerned is to be able to get out of a bet as soon as It goes on if need be.

"For the stock bets we want to limit this ability to prevent market manipulation by market makers who could otherwise use illegal techniques to profit in an unhedgable (for us) way. Does this make sense?"

No it doesn't. Not unless you explain these techniques John.

How about asking him Riwf?
 
Options

Did as you suggested. See answer below.

Market maker abuse, let me explain: Market makers are able to manipulate printed prices. That is, the price at which an asset is either reported to have traded at or the price that it is bid/offered at. This only need take place for a fraction of a second for it to register on the wires. Sometimes this happens as a consequence of 'fat fingers' errors, sometimes it is more sinister. When large exotics are due to expire and are close to a barrier you will observe (as an institutional market participant) huge volume increases as participant A seeks to defend a strike and participant B seeks to attack it.

We are not suggesting that our bets would be significant enough for anyone of this size to take any serious action along these lines as they do with large option contracts. However, a market maker could load up on a few $100k of at the money bets on the less liquid stocks offered then either execute a few notional trades with his mate across the floor or skew his spread a little to tip them further in the money before selling the bets fast. Removing the sell feature greatly reduces the potential for this kind of abuse. A negative effect is that it reduces flexibility for the 99.9% of traders who do not have this power.

I have seen this form of abuse happen in the past and it is a real threat. It is also unhedgable from the bookie's perspective as the prices are not actually dealable but were, briefly, real nonetheless.
 
I too have observed a lot of strike attack and defence in the markets. Perhaps they could reduce it from 24 hours to 5 or 10 though. I would think that should do it.

See you on the leaderboard (where I can't get off second place).

NQR
 
Someone is catching up with me on the leaderboard. I have been hard at it today on the site and do not want to lose 2nd position, infact I'd rather get to 1st. Is it any of you guys snapping at my heels (one Ronald F)?

I'm using some vol projection models for my system on there - getting a decent hit rate.
 
It is a prop model which began as one of the more recent (published) GARCH's and has been tweaked a lot over the last few years.

I wrote a paper on it as part of a phd proposal but never submitted the proposal (decided to defer a few more years) and thought better of publishing something with practical application.
 
Interesting that only 13 people have made any money on betaexoticbets, according to their performance table. Or is that par for the course? Anyone know?
 
A lot of 0% people there. The only way to achieve zero when trading is not to trade. It will always be positive or negative otherwise.

Cutting out the zero people the clients are net winning. Just as well they hedge.

Someone is catching up with me big time and I had a very dull day today with no signals in my system.

Hopefully the non-farm payroll will spark some vol and generate some signals tomorrow.

Are you on the board riwf?
 
Hahahahaha, are you Mr Number 2?

I better get cracking, you are getting close... you had a good day today. almost unch for me with just one open position.

How are you finding the system?
 
Pricing Error!!!

I found a pricing error in their system. This has really made my day. Call me a geek but stuff like this is what makes testing a system worthwhile.

Their binary bets have a major mispricing for the short term, in the money bets. That is to say, when the strike price is lower than the spot price on an 'UP' bet or higher on a 'DOWN' bet there is an opportunity to repeatedly make considerable sums of near risk free money.

The reason for this seems to be that they are using the wrong implied volatility for short dated ITM binary bets.

I exploited it for a couple of grand before feeling like a cheat and emailing them. Victory is only sweet when you know you are playing on even ground.

Here it gets fun: the error was a deliberate mis-pricing to see if any beta user would point it out.

John said that there is one more deliberate mis-pricing from which one can generate consistent near riskless profits in there that no one has either spotted or profited from and is offering £250 to the person who emails him with it first.

Hmmmmm...... what do you mean I should spend more time on my real work? ;-)
 
NotQuiteRandom said:
Pricing Error!!!

I found a pricing error in their system. This has really made my day. Call me a geek but stuff like this is what makes testing a system worthwhile.

Their binary bets have a major mispricing for the short term, in the money bets. That is to say, when the strike price is lower than the spot price on an 'UP' bet or higher on a 'DOWN' bet there is an opportunity to repeatedly make considerable sums of near risk free money.

The reason for this seems to be that they are using the wrong implied volatility for short dated ITM binary bets.

I exploited it for a couple of grand before feeling like a cheat and emailing them. Victory is only sweet when you know you are playing on even ground.

Here it gets fun: the error was a deliberate mis-pricing to see if any beta user would point it out.

John said that there is one more deliberate mis-pricing from which one can generate consistent near riskless profits in there that no one has either spotted or profited from and is offering £250 to the person who emails him with it first.

Hmmmmm...... what do you mean I should spend more time on my real work? ;-)
Click to expand...
In my experience dealing with spread betting and binary betting firms from tradindex to betonmarkets(that i had a big despute with,which resulted in discontinuing of some markets they were offering about 3 years ago because their pricing wasn't viable)every single one of them had and still has flaws,but it takes a lot of time and dedication to find them.
 
Not so much time today. I got two out of the three which have been found.

There may exist some which they don't know of. If there are I look forward to finding them. Really should do some work now though and stop messing around with this.

Did you see the post on their Beta forum about Time Switches? I quite like them for betting on forward vol. So, no other takers huh.
 
Interesting to see how things go this week, now that all the deliberate errors have been removed. Better idea of whether betaexoticbets are going to be any use to us when they go live.
 
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