Options Trading

The Protocol supports long and short trading of vanilla, cash-settled, European-style options.

Deriverse supports two basic types of options:

1. Call options: give the holder the right to buy the underlying asset at a certain date for a certain price.

2. Put options: give the holder the right to sell the underlying asset at a certain date for a certain price.

The key difference between Deriverse options and the classic options popular in traditional finance is that Deriverse options function within a limited price range, i.e. the Trading Range. If the current market price of the underlying asset approaches the edge of the Trading Range, the Deriverse options (Put or Call) will be cheaper than traditional finance options. However, the Trading Range is set in a way that minimizes the ocurrence of such situations.

The mechanics of Options Trading are based on the concept of an AMM, i.e. all transactions occur only with a single counterparty (also know as Peer-to-Pool). Unlike traditional finance options, which trade at different strike prices through the Orderbook, there is no bid/ask spread.

When generating a new Options Instrument Derivative, the initial strike price grid is created with a pre-determined price step. The strike prices on the grid are all within the initial Trading Range and their number ranges from 20 to 50. As the Trading Range narrows, if the number of working strike prices (located within the range) becomes less than 20, new strikes are generated. Between each working strike price in the middle, another one is subsequently created.

In the case of a short position, Collateral is required to be put up, covering all risks within the Trading Range.

As in the case with Futures, required Collateral is recalculated periodically as the Trading Range narrows.

All protocol risks are covered by the Perpetual Instrument Options Pool. If the pool is insufficient, transactions leading to an increase in Protocol risks are rejected.

When the expiration date arrives, profits and losses are calculated based on the corresponding Fixing Price. If this price goes beyond the Trading Range, then the settlement price equals the corresponding Trading Range bound.

To carry out final calculations, the Client has access to the Payoff instruction.