News Column

Researchers Submit Patent Application, "Edge Determination Device", for Approval

August 7, 2014



By a News Reporter-Staff News Editor at Computer Weekly News -- From Washington, D.C., VerticalNews journalists report that a patent application by the inventors Guime, Freddy (Aurora, IL); Glava, Victor (Chicago, IL); Kallay, Robert (Chesterton, IN), filed on January 11, 2013, was made available online on July 24, 2014.

The patent's assignee is OptionsCity Software, Inc.

News editors obtained the following quote from the background information supplied by the inventors: "Trading exchanges historically provided a location for buyers and sellers to meet to trade stocks, bonds, currencies, commodities, and other items. The New York Stock Exchange and the Chicago Mercantile Exchange are examples of such trading exchanges. Recent advances in computer and communications technology have led to electronic trading exchange system networks. Electronic trading exchange system networks use communications networks and computers to replicate traditional face-to-face exchange functions. For example, centralized exchange computers disseminate market information, maintain records and statistics, settle cash payments, determine risk based margin requirements, and match trades. Matching of trades is typically done on a first come-first served basis, whereby time of order entry is an important criterion for determining priority in fulfillment of a transaction.

"A communications network connects the exchange computers to numerous trader sites. Each trader site includes one or more trader stations operated by traders. Exchange network operators typically provide exchange members with interface software and, in some cases, hardware to enable traders to view prices and other information relating to products, and to execute transactions by submitting orders and quotes. This trading information is displayed in a grid or other organized format. Market competition is fierce. Traders who can quickly identify opportunities and act on them generate the largest profits.

"Most trader stations in use today rely upon the traders themselves to decide whether to submit an order in response to a trading opportunity presented through the exchange. In this regard, the trading information is received from the exchange, processed, and displayed on a monitor of the trader's station. The trader reads the trading information from the monitor and decides whether or not to submit an order. The trader submits an order by entering instructions into the trader station using a keyboard or mouse.

"Attempts have been made to implement trading systems that automate decision-making so that orders may be submitted with limited trader interaction. These systems have a number of drawbacks. For example, user-friendly systems that automatically submit orders without trader interaction, while faster than a human trader, are relatively slow in terms of computer speed due to application and system design. In a typical set-up, trading information received from the exchange is processed by general purpose backend computer equipment. The backend computer may, among other things, (1) act as a gateway by communicating to market information from the exchange to various types of client equipment, (2) submit, delete, and modify orders and quotes to the exchange from the various client equipment, (3) receive real-time trade confirmations and end-of-day back office reports, and (4) perform risk analysis, position management, and accounting functions. The trader stations are clients of the backend computer. The trader stations may be tasked with numerous functions, such as (1) receiving and displaying real-time market information, (2) creating and displaying theoretical prices related to market products, (3) composing, submitting, modifying, and deleting orders and quotes, (4) maintaining positions and calculating risk management, to name a few. Each trader station is typically configured in a very user-friendly, Windows-based environment since the trader will spend long periods of time each day watching and interacting with it. The overhead associated with the functions performed by the backend computer and the trader stations reduces the response speed of automated trading.

"In addition, computer equipment lacks the trading judgment of a human trader. A computer can generate staggering losses in the blink of an eye by submitting orders based upon incomplete or mistaken assumptions inherent in the trading program, erroneous input data, or corrupted data relied upon by the trading program. Accordingly, there exists a need in the art for an automated trading system that rapidly responds to trade information transmitted from an exchange, yet is safe and accurate. For example, automated hedging may be used to hedge the vega risk, the risk of a position or trade due to price changes of the options arising from changes of an option's volatility."

As a supplement to the background information on this patent application, VerticalNews correspondents also obtained the inventors' summary information for this patent application: "A method of determining an edge on an option strategy is disclosed. An option strategy may be accepted where the option strategy is a combination of buying and selling puts in calls. A time edge is determined based on the option strategy. A delta value is determined where the delta value reflects acceptance of risk related to an underlying security in the option strategy. A vega value is determined where the vega value reflects acceptance of risk related to volatility of the underlying security in the option strategy. A delta percentage may be accepted to be applied to delta risk. A vega percentage may be accepted to be applied to vega risk. The delta percentage and the vega percentage may add up to 1. The delta edge may be determined by multiplying the time edge by the delta percentage multiplied by the delta value. Similarly, a vega edge may be determined by multiplying the time edge by the vega percentage multiplied by the vega value. The edge for the options strategy may be determined by adding the delta edge to the vega edge.

BRIEF DESCRIPTION OF THE DRAWINGS

"FIG. 1 is an illustration of a mobile computing device, a server type computer device and a communication device;

"FIG. 2 is an illustration of a portable computing device;

"FIG. 3 is an illustration of a server type computing device;

"FIG. 4 is an illustration of a method determining an edge on an option strategy;

"FIG. 5 is an illustration of setting the time edge;

"FIG. 6 is an illustration of setting the delta value;

"FIG. 7 is an illustration of setting the vega value;

"FIG. 8 is an illustration of adjusting the edge tilt between vega and delta; and

"FIG. 9 may illustrate an example of a spread (the one that is checked) that may be sent into the exchange for a quote request."

For additional information on this patent application, see: Guime, Freddy; Glava, Victor; Kallay, Robert. Edge Determination Device. Filed January 11, 2013 and posted July 24, 2014. Patent URL: http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=829&p=17&f=G&l=50&d=PG01&S1=20140717.PD.&OS=PD/20140717&RS=PD/20140717

Keywords for this news article include: OptionsCity Software Inc..

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Source: Computer Weekly News


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