Aren't these already available, sort of, in the form of interest rate swaps? And need notionals in the $100MM to make a few bucks, since everything's near-zero when it comes to yield curve.
I'm coming back with "more thought" as promised. I've implemented in code a way of generating strike prices around current spot price so they aren't expressed in a fixed and stupid unit (ex: "1"), which effectively doesn't mean anything for options. Instead it's expressed in "standard deviations around ATM" (ex: 2 std devs) and "how many ticks within those standard devs" (ex: 16 ticks means split the normalized interval [-2, 2] standard devs in 16 buckets, so effectively the tick is a quarter of a standard dev). At any maturity this allows for enough fine-grained strikes so option trading is meaningful, unlike that stupid SMFG case I pointed out a while ago (spot price was $6 but strikes were only available at $5 and $7). As maturity goes from far to mid to near, the absolute value of the strike tick will decrease. Think spot price is $100 and maturity is 1 year, it's reasonable to have absolte ticks of $10 lets say. But when maturity is 1 day, the tick would be $0.5 or so. Anyways, it's not really technically complicated, the algo is as follows: - Each day generate new absolute strikes around EOD stock close using historical 252 volatility to compute the standard deviations - Preserve all existing strikes of a maturity (so if someone entered a position on a strike they can quote / exit at the same strike). - If a newly generated strike is within strike tick (in standard devs) from an existing strike, discard the new strike and use old one instead. Over the lifetime of a maturity, strikes will accumulate but they won't be so many as to be unmamageable. Here's how it looks in a simulation: Start of maturity: Mid term: Expiration:
@Aquarians are you trying to say instead of a fixed contract lot of 100 you'll be able to choose any given "n" of stock to excercise your options into? Sorry if I misinterpreted this, I skimmed your post, I'll read it again in a bit!
Not really, I didn't say anything related to contract size so they'd be still 100. Just allow "floating" strikes, so not fixed upfront but dynamically added on the way, in order to reflect the stock price.
interesting, I think this exists already though? I think I’ve read about a certain exotic that lets you choose strikes during the duration, “chooser” options let you choose between callls or puts
You’re right that the financial markets keep evolving and there is certainly some volatility associated with them.