Methods and systems for creating and trading strips of financial products
View Patent ↗The present invention includes a method comprising receiving a first electronic BUY STRIP order; receiving a second electronic SELL STRIP order; matching the first STRIP order with the second STRIP order, wherein the first STRIP order is a contra order to the second STRIP order; executing the matched first and second STRIP orders; generating a first plurality of tradable component financial product trades based on the executed first STRIP order; generating a second plurality of tradable component financial product trades based on the executed second STRIP order; matching the first plurality of tradable component financial product trades with the second plurality of tradable component financial product trades, wherein the first plurality of tradable component financial product trades are contra trades to the second plurality of tradable component financial product trades; and executing the matched first and second plurality of tradable component financial product trades.
1. A computer-implemented method for trading STRIP orders, comprising the following steps:
receiving, by an exchange computer, a first electronic STRIP order, wherein the first electronic STRIP order is a BUY order;
receiving, by the exchange computer, a second electronic STRIP order, wherein the second electronic STRIP order is a SELL order;
matching, by the exchange computer, the first STRIP order with the second STRIP order, wherein the first STRIP order is a contra order to the second STRIP order;
executing, by the exchange computer, the matched first and second STRIP orders;
generating, by the exchange computer, a first plurality of tradable component financial product trades based on the executed first STRIP order;
generating, by the exchange computer, a second plurality of tradable component financial product trades based on the executed second STRIP order;
matching, by the exchange computer, the first plurality of tradable component financial product trades with the second plurality of tradable component financial product trades, wherein the first plurality of tradable component financial product trades are contra trades to the second plurality of tradable component financial product trades; and
executing, by the exchange computer, the matched first and second plurality of tradable component financial product trades.
2. The computer-implemented method of claim 1 , wherein the first plurality of tradable component financial product trades and the second plurality of tradable component financial product trades comprise at least one of securities orders, options orders, or futures orders.
3. The computer-implemented method of claim 1 , wherein the first electronic STRIP order and the second electronic STRIP order are Variance STRIP orders.
4. The computer-implemented method of claim 3 , wherein the first and second plurality of tradable component financial product trades are trades for options on a financial index.
5. The computer-implemented method of claim 3 , wherein a composition of the first and second plurality of tradable component financial product trades is calculated, in part, using a formula:
C
i
=
2
T
[
Δ
K
i
K
i
2
]
ⅇ
RT
×
[
vega
notional
2
×
σ
]
×
100
wherein,
σ 2 is a variance (volatility-squared); VIX=σ×100;
T is a time to expiration;
K i is a strike price of an i th option;
ΔK i is an interval between strike prices;
R is a risk-free interest rate to expiration; and
Q(K i ) is a price of an option with strike K i .
6. The computer-implemented method of claim 1 , wherein the exchange computer comprises a plurality of computers.
7. An electronic trading system for trading STRIP orders, comprising:
an exchange computer having a memory for storing STRIP order information and a processor; and
wherein the processor is configured to:
receive a first electronic STRIP order, wherein the first electronic STRIP order is a BUY order;
receive a second electronic STRIP order, wherein the second electronic STRIP order is a SELL order;
match the first STRIP order with the second STRIP order, wherein the first STRIP order is a contra order to the second STRIP order;
execute the matched first and second STRIP orders;
generate a first plurality of tradable component financial product trades based on the executed first STRIP order;
generate a second plurality of tradable component financial product trades based on the executed second STRIP order;
match the first plurality of tradable component financial product trades with the second plurality of tradable component financial product trades, wherein the first plurality of tradable component financial product trades are contra trades to the second plurality of tradable component financial product trades; and
execute the matched first and second plurality of tradable component financial product trades.
8. The system of claim 7 , wherein the first plurality of tradable component financial product trades and the second plurality of tradable component financial product trades comprise at least one of securities orders, options orders, or futures orders.
9. The system of claim 7 , wherein the first electronic STRIP order and the second electronic STRIP order are Variance STRIP orders.
10. The system of claim 9 , wherein the first and second plurality of tradable component financial product trades are trades for options on a financial index.
11. The system of claim 9 , wherein the processor is configured to calculate a composition of the first and second plurality of tradable component financial product trades, in part, using a formula:
C
i
=
2
T
[
ΔK
i
K
i
2
]
ⅇ
RT
×
[
vega
notional
2
×
σ
]
×
100
wherein,
σ 2 is a variance (volatility-squared); VIX=σ×100;
T is a time to expiration;
K i is a strike price of an i th option;
ΔK i is an interval between strike prices;
R is a risk-free interest rate to expiration; and
Q(K i ) is a price of an option with strike K i .
12. The system of claim 7 , wherein the exchange computer comprises a plurality of computers.