# Introduction Speculate, hedge or earn premiums from NFT Options ## Background In the first quarter of 2023, NFTCall launched our first version NFT options trading platform ([NFTCall V1](https://docs.nftcall.xyz/nftcall-v1)) on the Ethereum mainnet using physical settlement and peer-to-peer trading mode. It enables NFT holders to earn premiums and sell their NFTs at higher prices. Additionally, it provides an opportunity for NFT investors to purchase NFTs with high leverage but limited losses. However, this mode has some limitations. Firstly, it does not support put options, which restricts its use for hedging purposes. Secondly, with physical settlement, a trade completes with the transfer of the underlying NFT from the options seller to the buyer. It is simple and robust in some circumstances, but it is inefficient and risky for traders to realize their profits when compared to cash settlement due to a lack of liquidity in the NFT market. Thirdly, the tremendous gas cost on Ethereum mainnet has also become the main obstacle for the widespread adoption of the protocol. Therefore, we built NFTCall Surge (V2) to address these limitations with a series of innovative solutions. ## What is NFTCall Surge? NFTCall Surge is an NFT options trading platform on Layer-2 that uses a peer-to-pool model and auto market making mechanism. It enables NFT investors to trade NFT options against liquidity pools, speculate or hedge against price fluctuations, while liquidity providers can earn premiums from auto market making. **Peer-to-pool model** Inspired by [GMX](https://gmx.io/), [Gains Network](https://gains.trade/) and [Lyra](https://www.lyra.finance/), we adopt the peer-to-pool model for cash-settled NFT options. The liquidity pool will automatically provides market-making services through an AMM model, allowing traders to purchase both call and put options against the liquidity pool. **Cash-settled NFT Options** Compared to NFT-settled options, NFTCall’s cash-settled NFT options create a more flexible trading experience without royalties and provide lower entry barriers for traders who are interested in gaining exposure to NFT price fluctuations. **Auto market making** NFTCall AMM is the foundation for the peer-to-pool model options market. The core mechanism of the AMM is to increase the cost of NFT options when the demand for options is high and decrease it when the supply is high. By taking this approach, the AMM can reach a market-clearing value for NFT options with any strike and expiry, and effectively manage the risks associated with options trading for LPs. ## Why trade NFT options on NFTCall Surge? With the peer-to-pool model and auto market making mechanism, NFTCall will fully unleash the power of NFT options, benefiting traders and liquidity providers in the following use cases: * **Speculation**: Speculating on the future price trend of an NFT collection can be profitable regardless of whether the floor price rises, falls, or fluctuates within a range. * **Hedging**: NFT holders can use NFT options to hedge against the risk of a drop in NFT prices. * **Yield**: Liquidity providers deposit liquidity into the vault as option sellers and use NFT options to generate income or revenue. * **Leverage**: Options have similar market exposure to owning an NFT, but require less money, providing more leverage and flexibility for investment portfolios, especially for high-priced blue-chip NFTs. ## Available on popular Layer-2 networks To enhance the trading experience, NFTCall Surge will be deployed on **Arbitrum** and **ZkSync Era** to achieve faster transaction speeds and lower gas costs, more importantly, to embrace the rapidly growing ecosystem of Layer-2. # Learn NFT Options ## What is an NFT Option? An option gives the holder the right to buy (call option) or sell (put option) an asset at a specified price (the **strike price**) at a certain time (expiration). **Example:** The ETH 3000 strike call expiring in 14 days gives the holder the right to purchase 1 ETH for $3000 in 14 days' time. Options are one of the most traded products in global financial markets. NFTCall introduce this simple definition into the NFT world, giving a universe of possibility to NFT traders. In terms of NFT options, the example above would change into: **NFT Option Example:** The BAYC #3211 75 strike call expiring in 14 days gives the holder the right to purchase the Ape NFT for 75 ETH in 14 days' time. ## Terminology ### NFT Options * **Call & Put:** There are two kinds of options, calls and puts. **Calls** allow the holder to lock in a price at which to buy the NFT. **Puts** allow the holder to lock in the selling price. You buy calls when you think the NFT floor price will go up, and you buy puts when you think it’ll go down. * **Strike Price:** An NFT option gives the holder the right to buy or sell a particular NFT at a specified price (the **strike price**) for a certain period of time. * **Expiration Date:** Options don’t last forever, though, they have an **expiration date**. After this date, the holder can no longer buy or sell the NFT at the strike price and the option is worthless. * **Premium:** The option premium is the total amount that options buyers pay for an option. The option premium is higher for NFT collections with higher floor price volatility in the recent past. * **Exercise:** In NFT options trading, "to exercise" means to put into effect the right to buy or sell the underlying NFT that is specified in the options contract. If the holder of a **call** option *exercises* the contract, they will **buy** the underlying NFT at a stated price before **expiration date**. Options can have many different strike prices, and many expiries, giving traders a variety of potential hedging solutions. ### Settlement There are two forms of options settlement: physical and cash settlement. * **Physical Settlement:** With a physical settlement, the trade completes with the transfer of the underlying NFT from the seller to the buyer. A call option holder exercises the option on a specific NFT. The options seller must then sell the NFT to the buyer of the options at the strike price. * **Cash Settlement:** Cash-settled options are trades that pay out in cash (ETH) at expiration, rather than delivering the underlying NFT. NFTCall allows traders to trade cash-settled NFT options by utilizing liquidity pools. Compared to NFT-settled options, NFTCall’s cash-settled NFT options creates a more flexible trading experience without royalties and provides a lower entry barriers for traders who are interested in gaining exposure to NFT price fluctuations. ## Options Payoff The payoff of an NFT option is the profit or loss that the holder of the option receives at the expiration date of the option. The payoff depends on the floor price of the underlying NFT at the expiration date and the strike price of the option. There are two types of options: ### **Call Option** The payoff of a call option is calculated as the difference between the floor price of the underlying NFT and the strike price, if the floor price of the underlying NFT is higher than the strike price at the expiration date.

Call Options Payoff

If the floor price of the underlying NFT is lower than the strike price at the expiration date, the payoff is zero. Example: Suppose you bought a call option on Bored Ape Yacht Club with a strike price of 50 ETH and an expiration date of March 31. If the floor price of Bored Ape Yacht Club on March 31 is 60 ETH, the payoff of the call option would be 10 ETH (the difference between 60 ETH and 50 ETH). If the price of Bored Ape Yacht Club on March 31 is 40 ETH, the payoff of the call option would be zero. ### Put Option The payoff of a put option is calculated as the difference between the strike price and the floor price of the underlying NFT, if the floor price of the underlying NFT is lower than the strike price at the expiration date.

Put Options Payoff

If the floor price of the underlying NFT is higher than the strike price at the expiration date, the payoff is zero. Example: Suppose you bought a put option on Bored Ape Yacht Club with a strike price of 80 ETH and an expiration date of March 31. If the floor price of Bored Ape Yacht Club on March 31 is 70 ETH, the payoff of the put option would be 10 ETH (the difference between 80 ETH and 70 ETH). If the price of Bored Ape Yacht Club on March 31 is 90 ETH, the payoff of the put option would be zero. # How does NFTCall work? NFTCall is an NFT options trading platform on Layer-2 that uses a peer-to-pool model and auto market making mechanism. It enables NFT investors to trade NFT options against liquidity pools, speculate or hedge against price fluctuations, while liquidity providers can earn premiums from auto market making. NFTCall Surge has two key user groups, namely liquidity providers and options traders. * **Liquidity providers (LPs)** deposit liquidity into the vault as option sellers. The vault automatically provides market-making services through an AMM model, helping LPs earn option premiums. * **Option traders** use NFTCall Surge to buy call or put options for speculation or hedging risks. Options buyers need to pay option premiums to LPs, and the pricing of options is determined by the AMM module and Black-Scholes formula. NFTCall Surge currently supports European-style options, which are settled in cash and can only be exercised at expiration. In addition, the protocol uses floor prices to evaluate the price of each NFT collection uniformly. When opening a position, options buyers can choose any out-of-the-money (OTM) strike price within a range, in other words, buyers can purchase NFT covered calls and protective puts in the platform. # ncETH Vault ncETH Vault is an WETH vault that follows ERC-4626, a standard API for tokenized yield-bearing vaults that represent shares of a single underlying ERC-20 asset. For this vault, ncETH shares are representative of the underlying WETH asset. The vault serves as the counterparty to all trades made on the platform: * When traders win (positive PnL), their profits will be paid by the vault. * When traders lose (negative PnL), their losses (premiums) will be obtained by the vault. 90% of the premiums will be sent to the vault, while the remaining 10% will be treated as protocol income. ## ncETH ncETH is an ERC-20 representing ownership of the underlying WETH asset. It follows an exchange rate model (similar to Compound's cTokens) where the price of ncETH to WETH changes in real-time from two variables: accumulated option premiums and trader options value (open options). ``` ncEthPrice = (totalWethAmount + unrealizedPnL) / ncEthTotalSupply ``` `unrealizedPnL`: accumulated options premiums of all open options minus the trader's corresponding option value. ## Withdraw locks & fees For the security of the vault, and to prevent stakers from front-running PnL changes, WETH can't be withdrawn immediately. Instead it will be locked for 72 hours. After 72-hour lock, stakers can withdraw their funds. {% hint style="info" %} Withdrawal incurs a fee of 0.3%, which will be added to the backstop pool to mitigate potential losses in the vault. {% endhint %} Please note that you will only be able to withdraw funds when the amount of available WETH in the Vault is sufficient, and you can only withdraw up to 50% of the available WETH in the Vault at one time unless the withdrawal amount is less than 1 ETH. ## Hedging risks The protocol aims for the ncETH vault to be close to delta-neutral, reducing PNL fluctuations for LPs and aiming to ensure that returns are driven by market making. There are several ways to hedge the potential risks: ### **Position restriction** * The number of WETH deposited determines the options positions that can be sold from the vault. 95% of the WETH in the treasury can be used as collateral for opening positions, while the remaining 5% is reserved as liquidity for users to withdraw at any time. * The proportion of selling call/put can be adjusted, for example, reducing the proportion of calls during a bull market and reducing the proportion of puts during a bear market. * Each NFT collection has a weight to control positions in the vault. For example, BAYC should not exceed 30% , and Azuki should not exceed 15%. The better the liquidity of a blue-chip collection, the higher the proportion of positions that can be opened. The weights of all collections combined may exceed 100%. ### Limited payout For call options, as there is no upper limit to the price rise, option sellers may have to bear unlimited risks. Therefore, the vault only provides limited payout for call options buyers. This means that that the maximum payout from the vault equals to the current floor price. At the same time, in order to compensate traders, the protocol will adjust down the premium for buying call options. Assuming that the current floor price of BAYC is 80 ETH, the buyer plans to purchase a call option with an expiration date of 7 days and a strike price of 100 ETH. The premium for this option before adjustment is referred to as `premium_100`. At this point, the protocol will calculate the premium for a call option with the same expiration date and a strike price of 180 ETH, which is referred to as `premium_180`. The final premium that the buyer needs to pay will be determined by the following calculation. ``` actual_premium = premium_100 - premium_180 ``` The calculation of final premium is equivalent to the vault selling a call option with a strike price of 100 ETH and buying a call option with a strike price of 180 ETH at the same time to the trader. This combination of options allows for loss control, with the maximum loss occurring when the spot price increase exceeding 100% of the current floor price. For put options, the maximum loss caused by the price drop is only 100%, so the vault's maximum loss is limited, which occurs when the spot price fall by 100%. ### Tuned premium In NFTCall Surge, the options pricing module will also consider the position of the vault, delta and PnL of each NFT collection and make corresponding adjustments to produce fair prices, decreasing the risks of the vault. You find the details in the [Options Pricing](broken://pages/0GbT4QmhFiBvw2C3Zp5k) section. ### Backstop pool NFTCall Surge creates an backstop pool to deal with certain extreme situations. If the vault suffers losses due to extreme events, the backstop pool will decide through DAO voting whether to compensate for LPs. The funding source of the backstop pool mainly consists of two parts: * The exercise fee collected by the protocol when a option is exercised, which is 0.5% of the nominal amount of the option. * The withdrawal fee generated when LP withdraws, which is 0.3% of the withdrawal amount. # Options Trading Traders can trade NFT call and put options against liquidity pools with OTM (out-of-the-money) strikes, as well as flexible expiration dates. NFTCall Surge uses floor prices to evaluate the market price of each NFT collection uniformly. NFTCall Surge options are European-style options, which means they can only be exercised at expiration. All options are settled in WETH. ## Opening a position When opening an option position, the options contract buyer first need to select the NFT collection, size, strike price and expiration date for the contract. The underlying NFT collection is the underlying asset of the contract. The size refers to the number of options contracts being acquired. The pre-determined price the option buyer can buy at is called the strike price. The expiration date is the date that the option contract becomes void and worthless. Premium will be calculated for the chosen NFT collection, size, strike price and expiration date for an option contract. After that, the buyer will be asked to pay this amount in WETH using their wallet. After payment, the buyer will receive an ERC721 option token that represents the bought option. ### NFT collection The option buyer needs to select an underlying NFT collection for the option contract. NFTCall Surge currently supports following blue-chip NFT collections: * Bored Ape Yacht Club * Mutant Ape Yacht Club * Azuki * Doodles * CloneX * Moonbirds ### Size The size is allowed to be a decimal, so traders can flexibly choose the position they can afford and gain exposure to blue-chip NFTs. For example, a trader can buy 0.1 Bored Ape Yacht Club options contract. Due to the risk control settings of the ncETH vault, the size limit available for each NFT collection when opening a position is different. ### Strike price For call options, option buyers can choose any OTM (out-of-the-money) price between +5% and +100% of the market price. For put options, option buyers can choose any OTM (out-of-the-money) price between -5% and -60% of the market price. Example: Let’s say the floor price of BAYC is 100ETH, the OTM strikes that will be available for trading are: * For call options: 110 ETH - 200 ETH * For pub options: 40 ETH - 90 ETH The floor price is quoted from the oracle. When the oracle price changes, the corresponding range of selectable strike price will also change accordingly. The oracle price may have a slight difference from the real-time price. ### Expiration date The duration of the option contract ranges from 3 to 28 days, so the expiration date must fall within this range. ### Premium The options buyer needs to pay a small premium for each option position. Premium is calculated for the chosen NFT collection, size, strike price and expiration date using Black-Scholes model. To hedge market risks, premium will be also adjusted based on the position, delta and PnL of the ncETH vault. {% hint style="info" %} Notice that there will a minimum premium limit based the size and expiration date of an option. {% endhint %} You can find the details in the [Options Pricing](broken://pages/0GbT4QmhFiBvw2C3Zp5k) section. ## Settlement NFTCall Surge options are European-style options, which means they can only be exercised at expiration. All options are settled in WETH. At expiration, the option will be settled automatically by keepers if the strike price is reached and the option value exceeds the[ exercise fee](#exercise-fee). ### Profit and Loss (PNL) PNL is calculated using the following formula: ``` PNL = OptionsValue - PaidPremium - ExerciseFee ``` * Options value are composed of two parts: intrinsic and time value. * Intrinsic value is the price difference between the current floor price and the strike price. See [Options payoff](/nftcall-surge/overview/learn-nft-options#options-payoff). * Time value is essentially linked to the probability that the option will expire in-the-money (with positive intrinsic value). * Time value is high when more time is remaining until expiry since investors have a higher probability that the contract will be profitable. * As the time to expiration approaches, the chances of a large enough swing in the underlying's price to bring the contract in-the-money diminishes, along with the time value. Therefore, if the strike price is not reached, you will see a negative PNL on your options position. However, due to NFTCall Surge's AMM mechanism, you will see a positive PNL on positions that are in the opposite direction of most positions. ### Limited payout for call options For call options, as there is no upper limit to the price rise, option sellers may have to bear unlimited risks. Therefore, the vault only provides limited payout for call options buyers. This means that the maximum payout from the vault equals to the current floor price. At the same time, in order to compensate traders, the protocol will adjust down the premium for buying call options. Please see more details about the [limited payout](/nftcall-surge/overview/nceth-vault#limited-payout). ## Fees | Fee | Description | | ------------- | ------------------------------------------------------------------------------------------------------------------------ | | Exercise fee | 0.5% of the notional value, 12.5% of the option value, whichever is lower, will be charged when a position is exercised. | | Execution Fee | 0.00005 WETH per position | ### Exercise fee When an option is exercised, a exercise fee will be charged by the protocol, which is **0.5% of the notional value** **or 12.5% of the option value, whichever is lower.** ``` Notional Value = Underlying Floor Price * Contract Size ``` The option can only be exercised when the strike price of the option is reached and the option value is positive. Otherwise, the option will be invalid and no exercise fee will be charged. The exercise fee will be sent to the [backstop pool](/nftcall-surge/overview/nceth-vault#backstop-pool) to deal with certain special situations, such as the loss of the liquidity pool. ### Execution Fee There are two transactions involved in opening a position: 1. User sends the first transaction to request open 2. Keepers observe the blockchain for these requests then execute them 3. If the position cannot be executed within the allowed slippage the request is cancelled and the funds are sent back to the user 4. If the keeper fails to execute the position, the users can cancel the request manually. For exercising an option, user does not need to send a request, the keepers will automatically execute a transaction to exercise the option. The cost of the transaction executed by the keepers is displayed in the trading panel as the "Execution Fee", which is currently set at **0.00005 WETH per position**. This network cost is paid to the blockchain network. ## Slippage There is a tiny time lapse between when a user sends a request and a keeper executes it. And the floor price and volatility may fluctuate during this period, so the keeper will request the real-time data to calculate premiums, resulting in changes in option costs compared to when users send their requests. Therefore, when users send requests, the protocol will ask them to pay slightly higher than the calculated premium to guarantee the success rate of executing positions. The portion exceeding the calculated premium is determined by the slippage which is controlled by the user. After successful opening a position, any excess fees will be refunded to the user. {% hint style="info" %} 5% is a reasonable allowed slippage. Note that a low allowed slippage, e.g. less than 0.5%, may result in failed orders if prices are volatile. {% endhint %} # Options Pricing NFT options pricing fundamentally comes down to finding a market-value for **implied volatility (IV),** the expected volatility of the NFT floor price from now until expiration. When implied volatility is high (low), the cost to buy (sell) an option **increases (decreases).** We'll get into more details as to how: * How implied volatility translates into the price of an option * How IV varies across strikes and expiries in the following sections. ## Black Scholes The Black-Scholes model is the foundation of options pricing. It takes in the following 5 inputs: * Asset price (S) * Strike price (K) * Risk-free interest rate (r) * Time to expiry (T) * Implied volatility (sigma) and outputs the price of an option. Knowing the inputs to the model is a good enough starting point to begin to reason about options - but interested readers can read more about the model and its derivation [here](https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model). The important point to notice here is that, of the 5 inputs to the model, 4 are widely known to all market participants. The current price of the asset, the strike/expiry of the options contract, and the risk-free rate are all 'known' inputs to the equation. The only input that is not observable is implied volatility. This means that when market participants are trading options, what they are *really* trading is *implied volatility.* Therefore, the major work of NFTCall is to calculate implied volatility of NFT floor prices. ## Volatility Volatility is a metric that measures the magnitude of the change in floor prices in an NFT collection. Generally speaking, the higher the volatility—and, therefore, the risk—the greater the reward. If volatility is low, options' premium is low as well. There are several ways to measure volatility, but options traders generally work with two metrics: implied volatility and historical volatility. * **Implied Volatility:** Implied, or projected, volatility is a forward-looking metric used by options traders to calculate probability. * **Historical Volatility:** Also referred to as statistical volatility, historical volatility gauges the fluctuations of underlying assets by measuring price changes over predetermined periods of time. Implied volatility, as its name suggests, uses supply and demand, and represents the expected fluctuations of an underlying asset over a specific time frame. However in NFTCall, once created, NFT options cannot be freely traded like traditional stock options. Hence, implied volatility is difficult to calculate due to the absence of market prices of NFT options. **This leads us to choose historical volatility to evaluate volatility.** Historical volatility of an asset can be computed by looking at the variance of its returns over a certain period of time. It is computed by multiplying the standard deviation (which is the square root of the variance) by the square root of the number of time periods in question, T. ![](https://www.gstatic.com/education/formulas2/443397389/en/volatility.svg) [Here](https://www.investopedia.com/articles/investing/102715/computing-historical-volatility-excel.asp) is how historical volatility is computed in detail. ## How NFTCall uses Black-Scholes NFTCall quotes options over a range of strikes and expiries. When a trade is made, the relevant historical volatility is fed into a Black-Scholes pricing equation (which takes in the other 4 parameters), yielding the option price. ## Auto market making In NFTCall Surge, the auto market making will also consider the position of the vault, delta and PnL of each NFT collection and make corresponding adjustments to produce fair prices, decreasing the risks of the vault. The AMM's core mechanism is to adjust the cost of NFT options based on demand and supply. When demand for options is high, the cost increases; when supply is high, it decreases. This approach enables the AMM to establish a market-clearing value for NFT options with any strike and expiry while effectively managing risks associated with LPs' options trading. ### Adjusted Volatility The AMM model uses adjusted volatility to calculate the options premium because according to the Black-Scholes formula, the most effect way to tune the premium is to adjust volatility given the strike price and expiration time. When a user opens an options position, the protocol will adjust volatility by calculating the impact of the position on the vault. The adjusted volatility will be put into the formula to calculate the tuned premium. ### Minimum Premium When an option is opened, the ncETH vault will lock the corresponding maximum payout amount to ensure the trader's profit at expiration. According to the Black-Scholes formula, when the expiration time is set to be long and the position size is large, a trader can use a small premium to lock a large amount of liquidity, resulting in low capital utilization. Therefore, we introduce a minimum premium to address this situation. We set a pre-determined annualized return rate for the ncETH vault, then calculate the minimum premium using the following formula: ``` minimumPremium = maximumPayout * optionDuration * apr / 365 ``` Currently, the annualized return rate of the insurance vault is set at 5%. # NFT Oracle ## Overview NFTCall aggregate NFT floor prices from multiple leading marketplaces and submit them to our oracle contracts on deployed chains. These floor prices will be used to calculate option premiums in the Black-Scholes formula and as reference prices in the options settlement. Therefore, upholding the efficiency of the platform requires a secure decentralized oracle solution to accurately price the NFTs. However, due to their unique non-fungibility, the nature of NFT liquidity (or often lack thereof) is different from fungible ERC20 tokens, so additional consideration was required. Due to the high cost of some existing oracle infrastructures such as Chainlink, we decided to build our own oracle. And we keep the floor prices and volatility trustworthy and secure with following strategies: * Collecting data from multiple NFT marketplaces (Opensea, LooksRare, X2Y2). * Removing extreme outliers such as 0 or error data. * Removing possible outliers by calculating a reasonable range based on the standard deviation. * Calculating the average of the filtered data and submit it to the oracle contract. ## Data Source All NFT price data is sourced from multiple NFT marketplace by directly monitoring their floor price APIs. The price data will be updated every 2 hours, but when the off-chain floor price data moves more than deviation threshold, an update will be triggered immediately to write a new price into our oracle smart contract. We have integrated the following NFT marketplaces into our data sources: | Marketplace | Regular Update Period | Trigger Deviation Threshold | | ----------- | --------------------- | --------------------------- | | Opensea | 2 hours | 1% | | Blur | 2 hours | 1% | | LooksRare | 2 hours | 1% | | X2Y2 | 2 hours | 1% | ## Strategies First we collect data from some of the most trustworthy NFT marketplaces (Opensea, Blur, LooksRare, X2Y2). And we monitor the price changes from their official NFT floor price API. To ensure the NFT marketplace data is correct, Zero or other error data will be removed from the calculation. Next, we remove prices that falls outside the reasonable range. We assume the prices from different marketplaces conform to the normal distribution during a particular time period, which means they should not have wide swings at a checkpoint, so the range is calculated using the standard deviation. Prices that falls outside 1.5X standard deviation will be considered as outliers and removed from the calculation. Then, we calculate the weighted average of the filtered data using a 24-hour trading volume and submit it to the oracle contract. ## Data Feeds {% tabs %} {% tab title="Arbitrum" %} | Contract | Address | | ------------ | ------- | | Oracle | TBD | | | | | {% endtab %} | | {% tab title="Arbitrum Goerli" %} | Contract | Address | | ------------- | ---------------------------------------------------------------------------------------------------------------------------- | | Oracle | [0xe8aeafe1022d835d0a831757c477a910d86e84a6](https://testnet.arbiscan.io/address/0xe8aeafe1022d835d0a831757c477a910d86e84a6) | | | | | {% endtab %} | | | {% endtabs %} | | # Contract Addresses Contract Addresses of pools and tokens ## Arbitrum TBD # Trade Buy options to speculate or hedge ## Why would I buy NFT options? By purchasing NFT options, NFT investors can benefit from the following use cases: * **Speculation**: Speculating on the future price trend of an NFT collection can be profitable regardless of whether the floor price rises, falls, or fluctuates within a range. * **Hedging**: NFT holders can use NFT options to hedge against the risk of a drop in NFT prices. * **Leverage**: Options have similar market exposure to owning an NFT, but require less money, providing more leverage and flexibility for investment portfolios, especially for high-priced blue-chip NFTs. ## How do I buy NFT options? Browse to the "Trade" section and choose a collection for the NFT options you want to buy. Select a direction (Call or Put) and set the size, strike price and expiration date on the right panel. Then you can preview the total premium of the option, press "Open Position" button on the right panel to finalize the transaction.

Buy NFT options

Due to the AMM restrictions, the buyer can only choose strike price and expiration date within a certain range: * For call options: the strike price ranges from +10% to +100% of the current floor price. * For put options: the strike price ranges from -10% to -60% of the current floor price. * The shortest expiration date can be set as 3 days later, and the longest is 30 days later. There are two transactions involved in opening a position: 1. **User** sends the first transaction to request open 2. **Keepers** observe the blockchain for these requests then execute them 3. If the position cannot be executed within the allowed slippage the request is cancelled and the funds are sent back to the user 4. If the keeper fails to execute the position, the users can cancel the request manually. The cost of the transaction executed by the keepers is displayed in the trading panel as the "Execution Fee", which is currently set at **0.00005 WETH per position**. This network cost is paid to the blockchain network. ## What do these options terms mean? Before purchasing NFT options, you should understand exactly what these terms mean: * **Call & Put:** There are two kinds of options, calls and puts. **Calls** allow the holder to lock in a price at which to buy the NFT. **Puts** allow the holder to lock in the selling price. You buy calls when you think the NFT floor price will go up, and you buy puts when you think it’ll go down. * **Strike Price:** An NFT option gives the holder the right to buy or sell a particular NFT at a specified price (the **strike price**) for a certain period of time. * **Expiration Date:** Options don’t last forever, though, they have an **expiration date**. After this date, the holder can no longer buy the NFT at the strike price and the option is worthless. * **Premium:** The option premium is the total amount that options buyers pay for an option. The option premium is higher for NFT collections with higher floor price volatility in the recent past. Learn more details about [options terminology](/nftcall-surge/overview/learn-nft-options#terminology). There are also some related concepts about your potential profit or loss: * **Maximum Profit**: the maximum profit is the amount you can make from the option position. For call options, the vault only provides [limited payout](https://docs.nftcall.xyz/nftcall-surge/overview/options-trading#limited-payout-for-call-options), which means the vault cannot pay for any option profits resulting from a spot price increase exceeding 100%. In order to compensate traders, the protocol will adjust down the premium for buying call options. * **Breakeven Price:** breakeven price is the price at which the option cost is equal to the option value. In other words, it is the point at which there is neither profit nor loss. * **Maximum Loss:** the maximum loss is the amount you pay for the option position, known as the premium. * **Oracle Price**: the floor price is quoted from the oracle. When the oracle price changes, the corresponding range of selectable strike price will also change accordingly. The oracle price may have a slight difference from the real-time price. * **Adjusted Volatility**: adjusted volatility is used to calculate the options premium in order to hedge the risks. When demand for options is high, the adjusted volatility increases; when supply is high, it decreases. ## How can I adjust the allowed slippage? When opening a position, you will be asked to pay slightly higher than the calculated premium to guarantee the success rate of executing positions. The exceeding portion is determined by the slippage which is controlled by the user. Learn [why there is a slippage](/nftcall-surge/overview/options-trading#slippage). The slippage amount can be configured under "Settings", found by clicking on "Settings" icon at the top right of the page.

Setting slippage

## How to exercise my options? After purchasing an NFT option, you can find your position in the "Active Positions" tab.
For exercising an option, user does not need to send a request, the keepers will automatically execute a transaction to exercise the option. When an option is exercised, a exercise fee will be charged by the protocol, which is **0.5% of the notional value or 12.5% of the option value, whichever is lower.** The exercise fee will be sent to the [backstop pool](/nftcall-surge/overview/nceth-vault#backstop-pool) to deal with certain special situations, such as the loss of the liquidity pool. ## What happens when my options expire? The option can only be exercised when the strike price of the option is reached and the option value is positive. Otherwise, the option will be invalid and no exercise fee will be charged. You can check out all your trades in the "History" tab.

Trade history

## How much is the profit and loss? PNL is calculated using the following formula: ``` PNL = OptionsValue - PaidPremium - ExerciseFee ``` Learn more about [how the options value is calculated](/nftcall-surge/overview/options-trading#profit-and-loss-pnl). ## How much is the fees?
FeeDescription
Exercise fee0.5% of the notional value, 12.5% of the option value, whichever is lower, will be charged when a position is exercised.
Execution Fee0.00005 WETH per position
# Earn Deposit WETH in exchange for ncETH and earn protocol fees. Learn more. ## Why would I provide liquidity to the vault? Liquidity providers deposit liquidity into the vault as option sellers and use NFT options to generate income or revenue. The vault serves as the counterparty to all trades made on the platform: * When traders win (positive PnL), their profits will be paid by the vault. * When traders lose (negative PnL), their losses (premiums) will be obtained by the vault. The vault automatically provides market-making services through an AMM model, helping LPs earn options premiums. ## How do I deposit funds? Deposit WETH into the vault in exchange for ncETH, an ERC-20 token representing your ownership in the vault. Browse to "Earn" page, jump into the "Deposit" tab, enter the amount of WETH you would like to provide, check out the ncETH amount you will receive and click the "Deposit" button. Note that your received ncETH amount depends on the ncETH price.

Deposit

{% hint style="info" %} Please be aware, you can't immediately withdraw your assets within 72 hours and a new deposit will reset the lock time. Withdrawal incurs a fee of 0.3%. {% endhint %} Stakers receive 90% premiums from each option written on the platform in exchange for serving as the counterparty to all trades. ncETH accumulates these premiums in real-time. ## How can I withdraw my funds? Burn your ncETH in exchange for WETH. Browse to "Earn" page, jump into the "Withdraw" tab, enter the amount of ncETH you would like to redeem, check out the WETH amount you will receive and click the "Withdraw" button. Note that an additional approval transaction will be required when you redeem your ncETH.

Withdrawal

Please note that you will only be able to withdraw funds when the amount of available WETH in the Vault is sufficient, and you can only withdraw up to 50% of the available WETH in the Vault at one time unless the withdrawal amount is less than 1 ETH. Available WETH refers to funds not used by current open positions. {% hint style="info" %} Please be aware, you can't immediately withdraw your assets within 72 hours and a new deposit will reset the lock time. Withdrawal incurs a fee of 0.3%. {% endhint %} ## How do I claim the locked ncETH? You don't have to claim the locked ncETH manually. Your ncETH will be automatically unlocked after 72 hours. You can check out your ncETH locked amount and when they will be unlocked in the "Locked" section on the "Earn" page.

Locked ncETH

## How much have I earned? Your ncETH represents the ownership of the WETH asset in the vault. It follows an exchange rate model (similar to Compound's cTokens) where the price of ncETH to WETH changes in real-time. When the price of ncETH rises above the price at which you deposited your funds, your earnings will be positive; otherwise, it will be negative. You can check out your stats in the "Your Stats" section on the "Earn" page.

Your Stats

## How does the vault manage the risks? The protocol aims for the ncETH vault to be close to delta-neutral, reducing PNL fluctuations for LPs and aiming to ensure that returns are driven by market making. There are several ways to hedge the potential risks: * **Position restriction**: the WETH deposited determines available options positions. 95% is collateral, while 5% is reserved for withdrawals. Each NFT collection has a weight to control positions in the vault. Call/put proportions can also be adjusted based on market conditions. * **Limited payout**: the vault has limited payout for call options buyers due to unlimited risks for option sellers. This means that the vault cannot pay for any option profits resulting from a spot price increase exceeding 100% of the strike price. To compensate traders the protocol will adjust down the premium for buying call options. * **Tuned premium**: the options pricing module will also consider the position of the vault, delta and PnL of each NFT collection and make corresponding adjustments to produce fair prices, decreasing the risks of the vault. * **Backstop pool**: NFTCall Surge creates an backstop pool to deal with certain special situations, such as one-sided market conditions. If the vault incurs losses, the backstop pool will compensate for LP losses. The sources of funding for the backstop pool include trader's exercise fees and LP withdrawal fees. Learn more about [how the vault hedges the risks.](/nftcall-surge/overview/nceth-vault#hedging-risks)