Method and apparatus for improved electronic trading
View Patent ↗A method and apparatus for outputting data that represents the change in value of an options premium that would have resulted if the options traded in a direct linear volume relationship with its underlying security is provided. Input values utilized include a delta value, a gamma value, a value-weighted average price of an underlying stock, a reference price of the underlying stock, and an original order premium value.
1. A non-transitory computer-readable storage medium having instructions which, when executed on a processor, perform a method for generating a benchmark price for an option order, the method comprising:
receiving a first delta value, a gamma value, a volume-weighted average price value of an underlying stock of the option, a reference price value of the underlying stock, and an original order premium value;
where the first delta value is a measure of rate of change in the value of the option for a one-unit change in the price of the underlying stock;
the gamma value is a measure of rate of change in the first delta value for a one-unit change in the price of the underlying stock;
the reference price value of the underlying stock is a recent price of the underlying stock of the option; and
the original order premium value is set for an order interval;
calculating a rate of change value based on the volume-weighted average price and reference price values;
calculating an adjusted delta value by multiplying the rate of change value by the gamma value, and adding the first delta value;
calculating a gamma-weighted average price value by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, and adding the first product and ½ of the second product to the original order premium value;
calculating a benchmark price for the option order based on the gamma-weighted average price value; and
outputting the benchmark price for the option order;
wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, and adding the first product and ½ of the second product to the original order premium value.
2. The non-transitory computer-readable storage medium according to claim 1 , wherein the rate of change value is calculated by subtracting the reference price value from the volume-weighted average price value.
3. The non-transitory computer-readable storage medium according to claim 1 , wherein the adjusted delta value is calculated by multiplying the rate of change value by the gamma value, and adding the first delta value.
4. The non-transitory computer-readable storage medium according to claim 1 , wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value, and adding the original order premium value.
5. The non-transitory computer readable storage medium of claim 1 , wherein said original order premium value is a price originally paid for the option.
6. The non-transitory computer readable storage medium of claim 1 , wherein said original order premium value is a most recently reported price for the option.
7. The non-transitory computer readable storage medium of claim 1 , wherein said original order premium value is a price based on a bid-offer spread.
8. The non-transitory computer-readable storage medium according to claim 1 , wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value to obtain a product value, and subtracting the product value from the original order premium value.
9. An apparatus for generating a benchmark trading price for an option-order, comprising:
an input module for receiving electronically input values for said option from an options exchange via a network, the input values comprising a first delta value, a gamma value, a volume-weighted average price value of an underlying stock of the option, a reference price value of the underlying stock, and an original order premium value;
where the first delta value is a measure of rate of change in the value of the option for a one-unit change in the price of the underlying stock;
the gamma value is a measure of rate of change in the first delta value for a one-unit change in the price of the underlying stock;
the reference price value of the underlying stock is a recent price of the underlying stock of the option; and
the original order premium value is set for an order interval;
a processor connected to the input module for:
calculating a rate of change value based on the volume-weighted average price and the reference price values;
calculating an adjusted delta value by multiplying the rate of change value by the gamma value, and adding the first delta value; and
calculating a gamma-weighted average price value by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, an adding the first product and ½ of the second product to the original order premium value;
calculating a benchmark trading price for the option order based on said gamma-weighted average price value; and
an output module connected to the processor for outputting said benchmark trading price for the option order;
wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, an adding the first product and ½ of the second product to the original order premium value.
10. The apparatus according to claim 9 , wherein the rate of change value is calculated by subtracting the reference price value from the value-weighted average price value.
11. The apparatus according to claim 9 , wherein the adjusted delta value is calculated by multiplying the rate of change value by the gamma value, and adding the first delta value.
12. The apparatus according to claim 9 , wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value, and adding the original order premium value.
13. The apparatus of claim 9 , wherein the original order premium value is a price originally paid for the option.
14. The apparatus of claim 9 , wherein the original order premium value is a most recently reported price for the option.
15. The apparatus of claim 9 , wherein the original order premium value is a price based on a bid-offer spread.
16. The apparatus of claim 9 , wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value to obtain a product value, and subtracting the product value from the original order premium value.