Fantasy Football Market

 

Order entry page


1)      Introduction.

2)      Contracts.

3)      Summary.

 

The idea can be summarized as follows: This is to be a market exchange where investors can buy and sell option contracts, similar to, but different from security options. The contracts will terminate at the end of the regular season with a settlement of all contracts to follow. The value of the contract is based on those players’ real world stats. The price each contract sells for will be determined by the open market. The contracts can be traded 24/7 but trading of a contract will not be allowed during the games. Players lock 5 minutes before kick off of their team’s game and can be traded again after the conclusion of the contest.

 

 

The Contract.

Each contract is tied to a specific player. The contract is similar to a stock option contract in as much as there is an expiration date of the contract and there is a value tied to an underlying instrument however there is no strike price. Instead of a strike price the contract just has a settlement price.

 

Settlement price:

 

The value of the contract is derived from the player’s cumulative stats divided by the number of games played. The player’s stats are translated to a point value based on the following fantasy football scoring method: 1 point per 10 yards rush or receiving; 1 point per 25 yards passing; 6 points for each TD scored via rush, catch, or pass. –2 points per interception thrown. This score is divided by the number of games played by that player’s team, (note that this number will be 16 at the execution date unless there is a strike or other unusual circumstance.) In this manner the price will go up and down during the course of the season as a players points per game go up or down or as speculation on an expected increase or decrease in this value. This price is stated as avg. points per game to 2 places such as 9.31 or 21.87. The value of the contract is $1 USD per point so the above contracts have the value $9.31 and $21.87 respectively. When buying or selling contracts, the minimum price variance is .1 such as 9.3 and 21.9. Prior to the start of the regular season, the contract will have no intrinsic value as the settlement price will be zero but there of course are numerous opinions and projections out there upon which investors will determine that they believe that contract would be worth which is reflected in the value set by the market. Once the final game of the regular season has been played, the final settlemanet price is determined and any positions held will be executed at the settlement price.

 

Buyer:

The buyer of a contract looks to realize a gain by purchasing a contract whose value they expect to increase. Typically, buyers will look to purchase contracts on players who they feel are “underrated” by the experts or general consensus. The buyer will enter a buy order at the price they wish to pay and that order will be matched to a seller at the same price, when or if one becomes available. When player locks at 5 minutes prior to kick off, any pending buy orders will be canceled. If the order is executed then the buyer is said to be “long” one contract on the player in question.

 

This Long position can be exited one of 2 ways. The buyer can hold the contract until the execution date. This is called executing the contract. By holding the contract until its execution the buyer is obligated to sell a contract at the settlement price.

 

The other way to exit a Long position is to sell this contract back to the market during the normal training period prior to the execution date. The procedure is the same as selling to go Short (see below). By selling to exit, once the sale is complete, the buyer has closed their Long position and no longer owns a contract or is bound by the prior contracts settlement obligations.

 

The buyer has a fixed risk. The most amount of money they can lose is the amount of money they paid for their contract (less commissions and or settlement fees. See more below). The profit potential for a buyer is theoretically unlimited however in reality there are only so many points a player can score in a season however every so often a player comes along and has an amazing season. Tom Brady in 2007 had such a season scoring the highest value ever in this system at 31.12 points per game (498 points 16 games Settlement price $31.10/$31.20). As a buyer, if you buy a contract at $21.00 then you realistically have a $10 or so maximum profit potential (46.3%). A contract purchased for $10 would have a maximum profit potential of about $21.00 (207%).

 

 

 

The Seller:

The Seller of a contract looks to realize a gain by Selling a contract whose value they expect to decrease. Typically, Sellers will look to sell contracts on players who they feel are “overrated” by the experts or general consensus. The Seller will enter a Sell order at the price they wish to receive and that order will be matched to a Buyer at the same price, when or if one becomes available. When player locks at 5 minutes prior to kick off, any pending Sell orders will be canceled. If the order is executed then the Seller is said to be “Short” one contract on the player in question.

 

This Short position can be exited one of 2 ways. The Seller can hold the contract until the execution date. This is called executing the contract. By holding the contract until its execution the Seller is obligated to Buy a contract at the settlement price.

 

The other way to exit a Short position is to buy a contract in the market during the normal trading period prior to the execution date. The procedure is the same as buying to go Long (see above). By buying to exit, once the sale is complete, the Seller has closed their Short position and no longer owns a contract or is bound by the prior contracts settlement obligations.

 

The Seller has, in theory, unlimited risk. In reality there are only so many points a player can score in a season however every so often a player comes along and has an amazing season. Tom Brady in 2007 had such a season scoring the highest value ever in this system at 31.12 points per game (498 points 16 games Settlement price $31.10/$31.20). As a seller, if you sell a contract at $21.00 then you realistically have a $10 or so maximum loss potential. A contract sold for $10 would have a maximum loss potential of about $21.00. Because of this risk, sellers will be required to maintain a “margin” on all short positions they maintain. This margin is $35 for QB and $25 for WR,RB, and TE.

 

Example:

You sell a contract on Tom Brady for $30.00. After fees you receive $29.85. Since the margin on QB is $35 you must have had at least $5.15 in account funds available to sell this contract ($29.15 + $0.85 = $35.00). Funds that are being used to maintain a margin cannot be used for any other purpose until the Short position is exited.

 

The most amount of money that the seller can gain is the amount of money they sold the contract for (less settlement fees. See more below).

 

 

The Spread:

Instead of a commission the FFM uses spread pricing common in many currency markets. The spread on the FFM is 1 pip or.1 price movement, the minimum amount of variance allowed in a buy or sell order. For example, Investor A wants to buy a contract on some player and enters a buy order at 20.0, (the value of which is $20.00). This order would get matched up to an existing sell order at 19.9. The buyer pays $20.00. The Seller receives $19.90. The other $0.10 goes to the FFM in lieu of a commission or transaction fee. On contracts that are held until the execution date, the settlement value gets rounded down to the nearest .1 to determine the lower end of the settlement range. For example, last year Tom Brady settled at the value of $31.12 so the settlement price was $31.10/$31.20. Anyone holding a Long position on this contract would receive the lower amount less a .05 settlement fee ($31.05 in this case). Anyone holding a short position would pay the higher amount plus a .05 settlement fee ($31.25 in this case). The difference in the spread at the settlement having a higher cost is intended to encourage the sale of positions prior to the settlement date to boost liquidity especially near the end of the life of the contract.