Defi Options Trading Can Change Your Life!
It can also destroy you๐
Many jumped into options trading for the massive potential upside but end up losing money because they ignored the basics.
Don't think of trading options if you don't understand these concepts:
โค & rt ๐
It can also destroy you๐
Many jumped into options trading for the massive potential upside but end up losing money because they ignored the basics.
Don't think of trading options if you don't understand these concepts:
โค & rt ๐
Here's what I'll cover:
โข Options meaning
โข Types of options
โข Strike price
โข Implied volatility
โข Time decay
โข Lots of examples...
And related projects on my watch list.
Buckle your seat belts comrade, lest the wind of knowledge blows you away ๐
Done?
Let's fly...
โข Options meaning
โข Types of options
โข Strike price
โข Implied volatility
โข Time decay
โข Lots of examples...
And related projects on my watch list.
Buckle your seat belts comrade, lest the wind of knowledge blows you away ๐
Done?
Let's fly...
What Is an Option?
An option is a contract that gives you the right but not the obligation to buy or sell cryptocurrency at a set price for a limited time.
E.g A contract that allows you to buy $BTC at $20k, even when the price moves to $26k later.
The $6k would be your profit
An option is a contract that gives you the right but not the obligation to buy or sell cryptocurrency at a set price for a limited time.
E.g A contract that allows you to buy $BTC at $20k, even when the price moves to $26k later.
The $6k would be your profit
โขThe set time is called Expiration
โขThe set price is called Strike Price
โขThe fee you pay for this contract is called Premium
โขThe degree of price instability of the market is called volatility
High volatility=High premium
Low volatility=Low premium
Interesting right?
โขThe set price is called Strike Price
โขThe fee you pay for this contract is called Premium
โขThe degree of price instability of the market is called volatility
High volatility=High premium
Low volatility=Low premium
Interesting right?
Types of Option:
1. Put Option
A put option gives you the right to SELL crypto tokens at a particular price, on or before a specific date.
Buying a put option means you expect the price to GO DOWN for you to sell at your strike price which is above the market price for profit.
1. Put Option
A put option gives you the right to SELL crypto tokens at a particular price, on or before a specific date.
Buying a put option means you expect the price to GO DOWN for you to sell at your strike price which is above the market price for profit.
2. Call Option
A call option gives you the right to BUY a cryptocurrency at an agreed-upon price, on or before a particular date.
Buying a call option means you expect the price to GO UP so you can buy at your strike price which is below/cheaper than the market price for profit
A call option gives you the right to BUY a cryptocurrency at an agreed-upon price, on or before a particular date.
Buying a call option means you expect the price to GO UP so you can buy at your strike price which is below/cheaper than the market price for profit
Time Value:
Time equals money in options and the contracts have expiry dates.
Every day until the expiry date, the option will lose a bit of its "time" value as time reducesโknown as Time Decay.
The value an option will lose every day is represented by Theta.
Time equals money in options and the contracts have expiry dates.
Every day until the expiry date, the option will lose a bit of its "time" value as time reducesโknown as Time Decay.
The value an option will lose every day is represented by Theta.
Time decay increases as an option's time to expiration draws closer since there's less time to get a profit from the trade.
Zero-Day-to-Expiry or 0DTE options contracts are so cheap...
...because time decay has eaten up most of their value
Zero-Day-to-Expiry or 0DTE options contracts are so cheap...
...because time decay has eaten up most of their value
Here's how Options Trading in DeFi works.
Imagine this:
$ETH is currently worth $1,000, but you think it will rise to $1,200.
I think $ETH will go less than $1000, so I write a Call Option contract to buy $ETH at $1,100 and put it up for sale at $20 premium.
You buy and...
Imagine this:
$ETH is currently worth $1,000, but you think it will rise to $1,200.
I think $ETH will go less than $1000, so I write a Call Option contract to buy $ETH at $1,100 and put it up for sale at $20 premium.
You buy and...
...wait to see what happens in the market within the time before expiration.
Two things can happen:
1. If I'm right and the price goes less than $1000, then I get to keep the premium (easy money๐)
How?
Let me explain...
You bet the price will go up to $1200, but...
Two things can happen:
1. If I'm right and the price goes less than $1000, then I get to keep the premium (easy money๐)
How?
Let me explain...
You bet the price will go up to $1200, but...
... it becomes $750 per $ETH.
Would you exercise the contract to buy ETH at $1100 when the market price is $750?
No. Meaning the contract becomes worthless.
2. If you're right and the price goes up to $1250, then I'll have to sell my $ETH to you at $1100 (from the contract).
Would you exercise the contract to buy ETH at $1100 when the market price is $750?
No. Meaning the contract becomes worthless.
2. If you're right and the price goes up to $1250, then I'll have to sell my $ETH to you at $1100 (from the contract).
I.e the contract gives you the right to buy $ETH at a price lesser than the market price, therefore...
Profit =$1250 - $1100 - $20= $130
| | |
Market price Option price premium
Then I take the loss๐๐ค
Here's why...
Profit =$1250 - $1100 - $20= $130
| | |
Market price Option price premium
Then I take the loss๐๐ค
Here's why...
The calculation for me would be...
Loss= $20 + $1100 - $1250 = -$130
So you can see, it's a risky business.
It's either my loss Is your gain, or my gain is your loss.
But hold on โ
Let's go deeper...
Loss= $20 + $1100 - $1250 = -$130
So you can see, it's a risky business.
It's either my loss Is your gain, or my gain is your loss.
But hold on โ
Let's go deeper...
There's a joke that Option Trading protocols are more than users๐.
But sadly, this is true.
โข @opyn_ had 17k cumulative users in 2 day period.
โข @lyrafinance had 5.7k since November 2021.
โข @GMX_IO has attracted 134k users since August 2021.
But sadly, this is true.
โข @opyn_ had 17k cumulative users in 2 day period.
โข @lyrafinance had 5.7k since November 2021.
โข @GMX_IO has attracted 134k users since August 2021.
@RobinhoodApp earned $363m in 2021 from just fees and about 45% of the fees were from options.
And it will come to DeFi as well.
I believe DeFi options will experience explosive growth
And it will come to DeFi as well.
I believe DeFi options will experience explosive growth
Though DeFi options look complex, they allow retail traders to participate in assumptions and make bets on tokens
Robinhood's easy-to-use user interface made stock options trading accessible to people with little to no experience in stock options.
Due to their complexity...
Robinhood's easy-to-use user interface made stock options trading accessible to people with little to no experience in stock options.
Due to their complexity...
...whichever DeFi option pulls off the "Robinhood of DeFi" will make massive profit.
There are about 30 DeFi option protocols listed on @DefiLlama with a Total Value Locked (TVL) of $152.46m as of the time of this writing...
...with @opyn_ leading the pack.
There are about 30 DeFi option protocols listed on @DefiLlama with a Total Value Locked (TVL) of $152.46m as of the time of this writing...
...with @opyn_ leading the pack.
@opyn_ is a DeFi platform that allows you to trade options by using the unique architecture of 0x, a decentralized exchange protocol, to provide free limit orders to its users.
Here's what I mean by ox...
Here's what I mean by ox...
The architecture of 0x consists of two parts:
1. An off-chain relay
2. and an on-chain settlement.
The off-chain relay matches buyers and sellers, while the on-chain settlement will execute the trade on the blockchain.
1. An off-chain relay
2. and an on-chain settlement.
The off-chain relay matches buyers and sellers, while the on-chain settlement will execute the trade on the blockchain.
This way, limit orders can be placed and matched off-chain, which is faster and cheaper than executing the trade directly on the blockchain.
This allows @opyn_ to provide free limit orders to its users, as the cost of executing the trade is absorbed by the on-chain settlement.
This allows @opyn_ to provide free limit orders to its users, as the cost of executing the trade is absorbed by the on-chain settlement.
@opyn_ offers two trading strategies:
โข Crab USDC
โข and Zen bull ETH
Crab USDC allows you to earn USDC when ETH is low.
Zen bull ETH is a strategy that allows you to make money when ETH goes up but at a slow and steady pace.
Here's their main product that blew my mind ๐คฏ
โข Crab USDC
โข and Zen bull ETH
Crab USDC allows you to earn USDC when ETH is low.
Zen bull ETH is a strategy that allows you to make money when ETH goes up but at a slow and steady pace.
Here's their main product that blew my mind ๐คฏ
@opyn_'s main product, squeeth, allows for long positions without risk of liquidation.
Long positions pay a fee, while short positions receive funding from longs but must maintain a collateral ratio to avoid liquidation.
Read more about squeeth here:
Long positions pay a fee, while short positions receive funding from longs but must maintain a collateral ratio to avoid liquidation.
Read more about squeeth here:
If you learnt something...
Follow @Joeconceptss for more content.
โข DON'T like
โข DON'T retweet
Just leave a COMMENT
Thanks for reading ๐ค
Follow @Joeconceptss for more content.
โข DON'T like
โข DON'T retweet
Just leave a COMMENT
Thanks for reading ๐ค
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