Traditional Derivatives

Coming Soon: Fixed-maturity Derivatives will be available in Deriverse v2. This documentation describes planned functionality that is currently in development.

Trade sophisticated fixed-maturity futures and options with dynamic trading ranges, multiple expiries, and advanced risk management.

Overview

Traditional derivatives on Deriverse include futures and options contracts with specific expiration dates. These instruments feature dynamic trading ranges that adapt to market volatility, providing predictable risk boundaries while maintaining capital efficiency through cross-margining by expiry.

Key Features

Dynamic Trading Ranges

  • Volatility-based price boundaries

  • Daily recalibration at 08:00 UTC

  • Predictable maximum risk exposure

  • Automatic range adjustments

Multiple Expiry Schedule

  • 6 simultaneous expiration dates

  • 2 weekly expirations (Monday/Wednesday)

  • 4 monthly expirations (Fridays)

  • Automatic contract rollover

Cross-Margining

  • Positions aggregated by expiry date

  • Optimized collateral requirements

  • Risk-based margin calculations

  • Capital efficiency optimization

Futures Trading

Contract Mechanics

Opening Positions: When you open a futures position, required collateral equals the distance from transaction price to the relevant trading range bound:

  • Long Position: Collateral = Transaction Price - Lower Bound

  • Short Position: Collateral = Upper Bound - Transaction Price

Example: Trading range [100, 110]

  • Buy futures at 105: Collateral = 105 - 100 = 5 USDC

  • Sell futures at 105: Collateral = 110 - 105 = 5 USDC

Trading Range System

Daily Fixing Price

Between 07:55-08:00 UTC each day:

  1. Volume-Weighted Average: Calculate VWAP of all trades in window

  2. Fallback Rule: If no trades, use most recent transaction price

  3. On-chain Storage: Fixing price recorded immutably

  4. Range Calculation: Used for next day's trading bounds

Range Calculation Formula

Volatility Adjustment Factor:

α = e^(3.5 × √(v × t)) + 1.5v

Where:

  • v = historical daily volatility

  • t = time to expiration (days)

  • e = mathematical constant (≈2.718)

Suggested Trading Bounds:

suggested_min_px = p / α
suggested_max_px = p × α

Where p = fixing price

Dynamic Daily Adjustment

At 08:00 UTC, ranges update using adaptive logic:

if old_min_px <= suggested_min_px and old_max_px >= suggested_max_px:
    # Shrink to suggested range
    new_min_px = suggested_min_px
    new_max_px = suggested_max_px
else:
    old_width = old_max_px - old_min_px
    suggested_width = suggested_max_px - suggested_min_px
    
    if old_width <= suggested_width:
        # Keep existing range
        new_min_px = old_min_px
        new_max_px = old_max_px
    else if old_min_px > suggested_min_px:
        # Shift range down
        new_min_px = old_min_px
        new_max_px = old_min_px + suggested_width
    else:
        # Shift range up
        new_min_px = old_max_px - suggested_width
        new_max_px = old_max_px

Collateral Management

Dynamic Recalculation:

  • Automatic adjustment when trading range narrows

  • Manual recalculation instruction available

  • Immediate collateral optimization

  • Transparent margin requirements

Cross-Margining Benefits:

  • Offsetting positions reduce total margin

  • Spread strategies require less capital

  • Calendar spread efficiency

  • Risk-based capital allocation

Options Trading

Strike Price Grid

Initial Grid Setup:

  • 20-50 strikes spanning trading range

  • Uniform price increments

  • Complete coverage of range

  • Immediate trading availability

Dynamic Strike Addition: When active strikes fall below 20:

  1. Identify Gaps: Find adjacent strike pairs

  2. Add Midpoints: Calculate and insert new strikes

  3. Maintain Minimum: Ensure 20+ active strikes

  4. Preserve Range: No expansion beyond bounds

Trading Models

Deriverse is evaluating two architectures for options execution:

Orderbook-Based Model

Structure:

  • Independent orderbook per strike price

  • Traditional limit order matching

  • Price-time priority execution

  • Granular exposure control

Benefits:

  • Transparent price discovery

  • Precise order control

  • Familiar interface

  • Professional-grade tools

AMM-Based Model

Liquidity Pool Structure:

  • Single pool per underlying asset

  • Fungible LP tokens for providers

  • Cross-strike/expiry liquidity sharing

  • Tradeable LP tokens in spot market

Pricing Engine:

  • Truncated probability density function

  • Volatility-aware calculations using parameter D

  • Student's distribution over trading range

  • Guaranteed convergence and tractability

Delta Hedging:

  • Automatic hedge in futures market

  • Same maturity date alignment

  • Directional risk mitigation

  • Algorithmic rebalancing

Key Inputs:

  • Underlying price (Fixing Price)

  • Variance parameter (D) - game-theoretic volatility

  • Time to expiration

  • Aggregate exposure by strikes

Fee Accumulation:

  • Options trading fees to pool

  • Fixed-maturity futures fees to pool

  • LP token appreciation

  • Revenue sharing with providers

Expiration and Settlement

Expiration Schedule

Weekly Contracts (Mondays & Wednesdays):

  • 2 active expirations simultaneously

  • Settlement at 08:00 UTC

  • Automatic rollover post-settlement

  • 1-week duration focus

Monthly Contracts (Fridays):

  • 4 active expirations simultaneously

  • Settlement at 08:00 UTC

  • Automatic rollover post-settlement

  • 4-week duration focus

Settlement Process

Settlement Price Determination:

  1. Base Price: Use Fixing Price from expiry date

  2. Range Check: Verify price within trading bounds

  3. Boundary Adjustment: If outside range, use bound as settlement price

  4. Final Settlement: Calculate all P&L using settlement price

Automatic Processing:

  • All positions settled simultaneously

  • P&L calculated and distributed

  • Collateral returned (adjusted for P&L)

  • New contracts become available

Collateral Policy

Risk-Based Margining

Full Collateralization Requirement: All exposures must be fully covered by posted collateral under standardized risk models.

Expiry-Based Aggregation:

  • Positions grouped by expiration date

  • Combined risk calculation per group

  • Optimized margin requirements

  • Stress scenario testing

Margin Calculation Process:

  1. Mark-to-Market: Current position valuation

  2. Stress Testing: Potential loss under extreme scenarios

  3. Cross-Margining: Offsetting position benefits

  4. Buffer Requirements: Additional safety margins

Capital Efficiency

Benefits of Aggregation:

  • Spread positions require less margin

  • Offsetting exposures reduce requirements

  • Calendar spreads optimization

  • Portfolio-level risk assessment

Margin Optimization:

  • Real-time margin calculations

  • Immediate requirement updates

  • Transparent margin display

  • Proactive margin alerts

Risk Management

Trading Range Protection

Predictable Boundaries:

  • Maximum loss clearly defined

  • Range-bounded price movements

  • Automatic boundary enforcement

  • Systematic risk control

Volatility Adaptation:

  • Daily range recalibration

  • Market condition responsiveness

  • Volatility-aware adjustments

  • Smooth transition mechanics

Cross-Market Risk

Unified Risk Management:

  • Positions tracked across all markets

  • Total exposure monitoring

  • Cross-market correlation consideration

  • Systematic risk controls

Portfolio Perspective:

  • Account-level risk assessment

  • Multi-instrument optimization

  • Correlation-aware margining

  • Diversification benefits

Trading Strategies

Futures Strategies

Directional Trading:

  • Long/short exposure to price movements

  • Leverage through reduced margin requirements

  • Clear profit/loss boundaries

  • Time-limited exposure

Calendar Spreads:

  • Trade differences between expiry dates

  • Reduced margin requirements

  • Time decay strategies

  • Volatility plays

Options Strategies

Basic Strategies:

  • Call/put purchases for directional exposure

  • Covered call writing for income

  • Protective puts for downside protection

  • Straddles/strangles for volatility plays

Advanced Strategies:

  • Iron condors for range-bound markets

  • Butterfly spreads for specific price targets

  • Calendar spreads for time decay

  • Ratio spreads for skewed exposure

Best Practices

Risk Management

Position Sizing:

  • Understand maximum loss potential

  • Diversify across expiries and strikes

  • Monitor total portfolio exposure

  • Maintain adequate margin buffers

Timing Considerations:

  • Monitor expiry dates carefully

  • Plan rollover strategies

  • Consider time decay effects

  • Watch volatility cycles

Trading Tips

Futures Trading:

  • Monitor trading range boundaries

  • Plan entries/exits around range updates

  • Consider carry costs vs spot

  • Use spreads for capital efficiency

Options Trading:

  • Understand time decay (theta)

  • Monitor implied volatility levels

  • Consider delta hedging needs

  • Plan exit strategies before expiry

Technical Implementation

Oracle Integration

Price Discovery:

  • External oracle feeds (initial phase)

  • Migration to on-chain spot prices

  • Arbitrage-maintained accuracy

  • Redundant price sources

On-chain Settlement

Automated Processing:

  • Smart contract execution

  • Transparent settlement prices

  • Immediate P&L distribution

  • Immutable transaction records

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