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Systems and Methods of Derivative Strategy Selection and Composition University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Finance Department Faculty Publications Finance Department 11-7-2013 SYSTEMS AND METHODS OF DERIVATIVE STRATEGY SELECTION AND COMPOSITION Greg Hammond Follow this and additional works at: https://digitalcommons.unl.edu/financefacpub Part of the Finance and Financial Management Commons This Article is brought to you for free and open access by the Finance Department at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Finance Department Faculty Publications by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. 111111 1111111111111111111111111111111111111111111111111111111111111111111111111111 us 20130297476Al (19) United States (12) Patent Application Publication (10) Pub. No.: US 2013/0297476 Al Hammond (43) Pub. Date: Nov. 7, 2013 (54) SYSTEMS AND METHODS OF DERIVATIVE Publication Classification STRATEGY SELECTION AND COMPOSITION (51) Int. Cl. G06Q 40/04 (2006.01) (71) Applicant: NUTECH VENTURES, INC., Lincoln, (52) U.S. Cl. NE (US) CPC ...................................... G06Q 40/04 (2013.01) USPC .... ... ... ... ... ..... ... ... ... ..... ... ... ... ... ..... ... ..... 705/37 (72) Inventor: Greg Hammond, Lincoln, NE (US) (73) Assignee: NUTECH VENTURES, INC., Lincoln, (57) ABSTRACT NE (US) (21) Appl. No.: 131731,695 A method and apparatus of selecting derivative strategies, where candidate derivative strategies are selected from a set (22) Filed: Dec. 31, 2012 of essentially all possible derivative strategies available for an underlying, based upon a user's market sentiment for an Related U.S. Application Data underlying, to perform favorably under the foreseen condi­ (60) Provisional application No. 611642,306, filed on May tions being most appropriate to the user's strategic intent and 3,2012. the choices afforded by the relevant markets. 12~ Context 18 ( Composition of Selection of Forecast for the Underlying Derivative Derivative Strategies (User's Market Sentiment) Strategies (Selecting) ! / ! 14 20 Market Data 16/L....- _____--l '"cj ~ ..... ('D .....= 'e~ .... (')- ~ ..... 12 o.... Context ='"cj 18 =0" .... (')- ~ ......... ( o= Composition of Selection of oz Forecast for the Underlying ~ Derivative Derivative Strategies ~-....l (User's Market Sentiment) N o Strategies (Selecting) .... (.H rFJ ('D ('D=­ ..... .... o 14 20 .... Market Data o.... 16 C Figure lA rFJ N o .... (.H o --­N \0 -....l .j;o. 0\-....l >.... '"cj ~ ..... ('D .....= ____ 26 'e~ 40 24 Bid-Ask .... (')- ~ Spread ..... o.... 44 Absolute Perspective I '\ ~ ='"cj Perspective r =0" ~28 .... on Price I~ II T ~~,,~--J~h, Ilt' I (')- Volume ~ ......... .1 '-Ul..J.J....l5 Perspective o 46 Relative ....J II L I = Perspective ~30 z on Price ~ / Open Interest o 'I ~ r~nrllrl~tp, 22 -......... I I PerspectIve ~-....l N o .... (.H rFJ 48 ('D Absolute ('D=­ ..... Perspective N o on Time Strategy 34 .... .... Net Premium o 50 Relative Rating Perspective C rFJ on Time N o .... (.H o --­N 42 32 \0 Figure IB -....l .j;o. 0\-....l >.... 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I :I I I I I I I ---- ----,----------------------------,---------------I I ------------ I I I I I I : N : I 00 : : ------------------- :~--... --------------------------~---------------I ------------ ---------------------.&---------------I ------------ o :::: s US 2013/0297476 Al Nov. 7,2013 1 SYSTEMS AND METHODS OF DERIVATIVE strategy may be represented as a combination of other strat­ STRATEGY SELECTION AND egies, and may be known by several different monikers (in­ COMPOSITION cluding some likely to be coined in the future), but any name still refers to the same collection and organization of basic CROSS REFERENCE TO RELATED symbols (defined herein) to form the derivative strategy. APPLICATIONS [0004] Electronic trading systems generally accept bids [0001] This application claims priority from U.S. Provi­ and offers in the form of"orders." These orders consist of data sional Application 611642,306, filed May 3, 2012 and entitled entered by actors. With advances in internet technology "Best Option Trading" which is hereby incorporated herein allowing the emergence of self-directed brokerage accounts, by reference in its entirety. an ever-increasing number of people elect to interact in the market as participants without a person acting as an interme­ FIELD OF THE INVENTION diary, and many of those people choose to trade derivatives contracts. With so many people trading derivatives that are [0002] The present invention relates generally to an appa­ not financial trading professionals, there is a wide gap ratus and method for the determination of appropriate deriva­ between the level of sophistication required to participate in tive strategies and the composition thereof. The invention is the market effectively and the skills of most actors, which is concerned with the actions taken by an "actor", meaning a why the technology seeks to close that gap by elevating the person or system that initiates the process to use the outputs to effectiveness of the less sophisticated actors. place a trade in market(s), for edification, as inputs into another system, or for any other use, beginning at the point in [0005] Currently, when determining a derivative strategy, which a market forecast has been determined for an underly­ the actor is required to make a series of difficult decisions. The ing. Once the apparatus and method presents the actor with current state ofthe art thus contains what will be referred to as specific strategies with specific compositions appropriate to a "decision problem." The decision problem is the difficulty their market forecast, the process is concluded. Processes of selecting an optimal strategy for an underlying where the immediately following those of the apparatus and method underlying is comprised, of one or many derivatives, each derivative with multiple attributes-some static and some could include placing an order or orders in market(s), editing order(s), saving order(s) for later, concluding an edification dynamic-that taken together, give rise to an optimal strat­ process, evaluating outputs(s), analyzing output(s), begin­ egy. The decision problem begins when an actor has deter­ ning the processes of the apparatus and method again, or mined their forecast for the underlying (or the user's market taking another action linked to the processes of the apparatus sentiment) and wants to determine an appropriate derivative and method. strategy in a specific composition. The decision problem involves choices by the actor, wherein he or she must deter­ BACKGROUND OF THE INVENTION mine which derivative strategy or strategies are best suited to establish a market position given their sentiment for the [0003] Derivative strategies exist in relation to an underly­ underlying on which the derivative instruments are based. ing. An underlying may itself be a derivative strategy, but is Inherent in this process, several factors and combinations commonly common stock in a corporation, an exchange­ must be considered to ensure good results each time. With any traded-fund, a commodity contract, an indicator, index, for­ given complex derivative strategy, having more than one con­ eign-currency exchange rate, interest-rate, or something stituent
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