Trade
Buy options to speculate or hedge
Last updated
Buy options to speculate or hedge
Last updated
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.
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.
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:
User sends the first transaction to request open
Keepers observe the blockchain for these requests then execute them
If the position cannot be executed within the allowed slippage the request is cancelled and the funds are sent back to the user
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.
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. 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, 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.
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.
The slippage amount can be configured under "Settings", found by clicking on "Settings" icon at the top right of the page.
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 to deal with certain special situations, such as the loss of the liquidity pool.
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.
PNL is calculated using the following formula:
Learn more about how the options value is calculated.
| 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
