Derivative Securities And System For Trading Same

Abstract

The present invention provides a derivative security whose value is determined by whether an underlying instrument will trade above or below a given price at or by a given time. The price of the underlying instrument in the inventive instrument must move a certain amount in a certain direction in a limited amount of time. If it does, that trade yields a fixed amount of money for the acceptor of the contract. If it does not, that acceptor loses the premium he paid for the contract. The inventive derivative securities may have a short-term expiry. The underlying instrument of the inventive derivative may be a stock or other security, or an index or interest rate. The present invention also provides for a system to trade the inventive security that allows any participant to post offers or fill orders from posted offers, with order flow coming from individual investors, institutions, specialists and market makers.

1 . A method of creating and trading a group of at least first and second related financial products, comprising:
 (a) identifying an underlying instrument, said underlying instrument having a first price corresponding to a market price of the underlying instrument at a first time;   (b) identifying an expiry and a payout;   (c) identifying a first premium to be paid by a buyer of the first financial product when the first financial product is issued;   (d) selecting a first value change in the underlying instrument, wherein the first value change comprises an absolute chance in value of the underlying instrument and a direction of change in value of the underlying instrument; wherein said first financial product is worth the payout amount to a buyer of the first financial product if, between the first time and expiry, the market price of the underlying instrument meets a first strike price, wherein the first strike price is a sum of the first price and the first value change; and wherein said first financial product is worth nothing to the buyer if, between the first time and expiry, the market price of the underlying instrument fails to meet the first strike price;   (e) identifying a second premium to be paid by a buyer of the second financial product when the second financial product is issued, wherein the second premium is different from the first premium;   (f) selecting a second value change in the underlying instrument, wherein the second value change is different from the first value change, and the second value change comprises an absolute change in value of the underlying instrument and a direction of change in value of the underlying instrument; wherein said second financial product is worth the payout amount to a buyer of the second financial product if, between the first time and expire, the market price of the underlying instrument meets a second strike price, wherein the second strike price is a sum of the first price and the second value change; and wherein said second financial product is worth nothing to the buyer if, between the first time and expiry, the market price of the underlying instrument fails to meet the second strike price; and   (g) providing a common electronic platform for trading each of the related financial products in the group.   
   
   
       2 . The method of  claim 1 , further comprising the step of identifying a type of said financial product. 
   
   
       3 . The method of  claim 2 , wherein said identifying a type comprises selecting either call or put. 
   
   
       4 . The method of  claim 2 , wherein said type is a call, and the change in value is a positive amount. 
   
   
       5 . The method of  claim 2 , wherein said type is a put, and the change in value is a negative amount. 
   
   
       6 . The method of  claim 1 , wherein said expiry is comprised of a date and time. 
   
   
       7 . The method of  claim 6 , wherein said time is one of the group of open, noon and close. 
   
   
       8 . The method of  claim 6 , wherein said time is an hour. 
   
   
       9 . The method of  claim 1 , wherein said underlying instrument is a stock. 
   
   
       10 . The method of  claim 1 , wherein said underlying instrument is a futures contract. 
   
   
       11 . The method of  claim 1 , wherein said underlying instrument is an index. 
   
   
       12 . (canceled) 
   
   
       13 . The method of  claim 1 , additionally comprising identifying a quantity of the financial products. 
   
   
       14 . The method of  claim 1 , wherein said financial product is offered for sale in an online trading exchange. 
   
   
       15 . The method of  claim 1 , wherein said first time is the time the financial product is bought by a buyer. 
   
   
       16 . The method of  claim 1  comprising the additional step of identifying the first time. 
   
   
       17 . The method of  claim 16 , wherein said identifying the first time comprises specifying a date and time. 
   
   
       18 . The method of  claim 16 , wherein said identifying, the first time comprises specifying, a time gap. 
   
   
       19 . A machine-readable medium for creating and trading a group of at least first and second financial products the medium having instructions stored thereon which when executed by a processor, cause the processor to: identify an underlying instrument said underlying instrument having a first price corresponding to a market price of the underlying instrument at a first time; identify an expiry and a payout; identify a first premium to be paid by a buyer of the first financial product when the first financial product is issued; select a first value change in the underlying instrument, wherein the first value change comprises an absolute change in value of the underlying instrument and a direction of change in value of the underlying instrument; wherein said first financial product is worth the payout amount to a buyer of the financial product if, between the first time and expiry, the market price of the underlying instrument meets a first strike price, wherein the first strike price is a sum of the first price and the first value change; and wherein said first financial product is worth nothing to the buyer if between the first time and expiry, the market price of the underlying instrument fails to meet the first strike price; identify a second premium to be paid by a buyer of the second financial product when the second financial product is issued, wherein the second premium is different from the first premium; select a second value change in the underlying instrument, wherein the second value change is different from the first value change, and the second value chance comprises an absolute change in value of the underlying instrument and a direction of chance in value of the underlying instrument; wherein said second financial product is worth the payout amount to a buyer of the second financial product if, between the first time and expiry, the market price of the underlying instrument meets a second strike price, wherein the second strike price is a sum of the first price and the second value change; and wherein said second financial product is worth nothing to the buyer if, between the first time and expiry, the market price of the underlying instrument fails to meet the second strike price; and provide a common electronic platform for trading each of the related financial products in the group. 
   
   
       20 . The machine-readable medium of  claim 19 , further comprising instructions stored thereon that cause the processor to identify a type of said financial product. 
   
   
       21 . The machine-readable medium of  claim 20 , wherein said instructions stored thereon which cause the processor to identify a type further comprises instructions which cause the processor to select either call or put. 
   
   
       22 . The machine-readable medium of  claim 20 , wherein said type is a call, and the change in value is a positive amount. 
   
   
       23 . The machine-readable medium of  claim 20 , wherein said type is a put, and the change in value is a negative amount. 
   
   
       24 . The machine-readable medium of  claim 19 , wherein said expiry is comprised of a date and time. 
   
   
       25 . The machine-readable medium of  claim 24 , wherein said time is one of the group of open, noon and close. 
   
   
       26 . The machine-readable medium of  claim 24 , wherein said time is an hour. 
   
   
       27 . The machine-readable medium of  claim 19 , wherein said underlying instrument is a stock. 
   
   
       28 . The machine-readable medium of  claim 19 , wherein said underlying instrument is a futures contract. 
   
   
       29 . The machine-readable medium of  claim 19 , wherein said underlying instrument is an index. 
   
   
       30 . (canceled) 
   
   
       31 . The machine-readable medium of  claim 19 , additionally comprising instructions which cause the processor to identify a quantity of the financial products. 
   
   
       32 . The machine-readable medium of  claim 19 , wherein said financial product is offered for sale in an online trading exchange. 
   
   
       33 . The machine-readable medium of  claim 19 , wherein said first time is the time the financial product is bought by a buyer. 
   
   
       34 . The machine-readable medium of  claim 19 , additionally comprising instructions which cause the processor to identify the first time. 
   
   
       35 . The machine-readable medium of  claim 34 , wherein said instructions which cause the processor to identify the first time comprises instructions identifying a specific date and time. 
   
   
       36 . The machine-readable medium of  claim 34 , wherein said instructions which cause the processor to identify the first time comprise instructions for specifying a time gap. 
   
   
       37 - 64 . (canceled)