Method and system for creating and trading derivative investment instruments based on an index of collateralized options

• US 8,341,069 B2
• Filed: 05/23/2011
• Issued: 12/25/2012
• Est. Priority Date: 01/30/2007
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Shalen, Catherine T.
• Primary Examiner(s): Colbert, Ella
• Assistant Examiner(s): ANDERSON, JOHN A
• Application Number:
  US13/113,755
• Publication Number:
  US 20120022988A1
• Time in Patent Office: 582 Days
• Field of Search: 705/357
• US Class Current: 705/37
• CPC Class Codes: G06Q 10/087 Inventory or stock management, e.g. order filling, procurement or balancing against orders
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Collateralized option index derivative investment instruments and methods for creating a collateralized option index are disclosed herein based on changes in a performance of collateralized option strategies. According to an aspect of the disclosure, a method for calculating a collateralized option index is disclosed. In one embodiment, the method for calculating a collateralized option index includes calculating a value of a portfolio invested in a collateralized short strategy according to the relation:
V_t=M_t−N_lastP_t
where M_t is a value of a LIBOR component of the portfolio at the close of date t, N_last is a number of put options sold at a last roll date, and P_t is a price of the underlying option portfolio based on arithmetic averages of the last bid and ask prices of all options in the underlying option portfolio reported before a time on date t.

Claims

1. A method for calculating a collateralized option index, the method comprising:

calculating, by a computer system having a processor, a value (V_t) of a portfolio invested in a collateralized short strategy according to a relation;

V_t=Mt−

Nlast Pt

wherein M_t is a value of a money market component of the portfolio at a close of date t, N_last is a number of put options sold at a last roll date, and P_t is a price of an underlying option portfolio based on arithmetic averages of last bid and ask prices of all options in the underlying option portfolio reported before a time on date t; and

transmitting, by the computer system, the value of the portfolio in the collateralized short strategy to market participants over a communication network.

2. The method according to claim 1, wherein on dates other than roll dates the value of the money market component is equal to:

M_t=(1+ρ

<sub>t−

1,t</sub>)M<sub>t−

1</sub>

wherein ρ

<sub>t−

1,t</sub> is an effective money market rate from date t−

1 to date t.

3. The method according to claim 2, wherein on roll dates, cash outflow from a final settlement of expiring options is debited from an account and proceeds from sales of new put options is credited to the account according to a relation:

M_t=(1+ρ

<sub>t−

1,t</sub>)M<sub>t−

1</sub>−

N_lastMax[0,K_old−

SOQ_t]+N_newP_vwap

wherein K_old is a strike price of put options sold at a previous roll date, SOQ_t is a final settlement price of these options on date t, N_new is a number of new puts sold and P_vwap is a volume-weighted average price at which the new options are sold.

4. The method according to claim 3, wherein the number N_new is determined according to a relation:

N_new=(M<sub>t−

1</sub>(1+ρ

<sub>t−

1,t</sub>)−

N<sub>t−

1</sub>max[0,K_old−

SOQ_t])/(K_new/(1+r)−

P_vwap)

wherein K_new is a strike price at which new puts are sold, and r is an effective money market rate of return from a present roll date to a next roll date; and

wherein r results from compounding the rate ρ

<sub>t−

1,t</sub> daily from roll date t to the next roll date.

5. A method for calculating a collateralized option index, the method comprising:

calculating, by a computer system having a processor, a value (V_t) of a portfolio invested in a collateralized short strategy according to a relation;

V_t=M_t−

N_lastP_t

wherein M_t is a value of a money market component of the portfolio at a close of date t, N_last is a number of put options sold at a previous roll dale, and P_t is a difference between arithmetic averages of a last bid and ask prices of the put option reported before a time on date t; and

transmitting, by the computer system, the value of the portfolio to market participants over a communication network.

6. The method according to claim 5, wherein on dates other than roll dates the value of a money market component is equal to:

M_t=(1+ρ

<sub>t−

1,t</sub>)M<sub>t−

1</sub>

wherein ρ

<sub>t−

1,t</sub> is an effective money market rate from date t−

1 to date t.

7. The method according to claim 6, wherein on roll dates a value of a money market account includes a cash settlement from expiring put options and proceeds from sales of new put options according to a relation:

M_t=(1+ρ

<sub>t−

1,t</sub>)M<sub>t−

1</sub>−

N_lastMax[0,K_last−

SOQ_t]+N_newP_vwap

wherein K_last is a strike price of the put options sold at the previous roll date, SOQ_t is a final settlement price of these options on roll date t, N_new is a number of new puts sold and P_vwap is a volume, weighted average price at which these options are sold.

8. The method according to claim 7, wherein the number N_new is determined according to a relation:

N_new=(M<sub>t−

1</sub>(1+ρ

<sub>t−

1,t</sub>)−

N<sub>t−

1</sub>max[0,K_old−

SOQ_t])/(K_new/(1+r)−

P_vwap)

wherein K_new is a strike price at which new puts are sold, and r is an effective money market rate of return from a present roll date to a next roll date; and

wherein r results from compounding the rate ρ

<sub>t−

1,t</sub> daily from roll date t to the next roll date.

9. A method for calculating a Put-Write index, comprising:

calculating, by a computer system having a processor, a value of a portfolio invested in a collateralized short strategy based on a linear relation between a value of a money market component of the portfolio and a total value of a plurality of put options sold, wherein the total value of the plurality of put options sold comprises a product of a number of the plurality of put options sold at a previous roll date and their corresponding prices; and

transmitting, by the computer system, the value of the portfolio to market participants over a communication network.

10. A computer system comprising:

a computer-readable memory; and

a processor coupled with the computer-readable memory, wherein the processor is configured to;

calculate a value of a portfolio invested in a collateralized short strategy based on a linear relation between a value of a money market component of the portfolio and a total value of a plurality of put options sold, wherein the total value of the plurality of put options sold comprises a product of a number of the plurality of put options sold at a previous roll date and their corresponding prices; and

transmit the value of the portfolio to market participants over a communication network.