0xdx Options
Background on options and details for 0xdx options.
Last updated
Background on options and details for 0xdx options.
Last updated
Typical options contracts give investors the right to, but not the obligation to, either buy or sell an asset before or at a specific expiry date. They also grant investors the ability to speculate in a certain direction and/or hedge their portfolios against upside/downside risk.
The two competing parties within options markets are Sellers & Buyers. Below is graphic showing the directional speculation for both buyers and sellers utilizing either calls or puts.
There are several types of options that allow for the ability to exercise (buy or sell) the asset secured by the option at differing intervals/dates. These include:
American style - allow for buyers to exercise their option at any time before the option’s date of expiration.
European style - buyers can only choose to exercise their option on the date of expiration.
⚠️0xdx uses European style options ⚠️
Bermudan style - buyers can exercise their option on any of several specified dates before the option's date of expiration.
The strike price of an option is the price at which a put or call option can be exercised. It is also known as the exercise price. Picking the strike price is one of two key decisions (the other being time to expiration) an investor or trader must make when selecting a specific option. The strike price has an important bearing on how your option trade will play out. (Ref: Investopedia)
0xdx allows investors to speculate with NFT options contracts at the collection level, enabling long and short exposure to the top Blue Chip collections. Below are the parameters and details around options contracts on the 0xdx platform.
Set the expiry of the option to end of week up to four weeks out (Fridays at end of day 23:59:59 UTC). Options can be bought and sold through our Order Book. Contracts can be settled and exercised on or after the Expiration Date.
The seller/buyer will assign a Strike Price to the contract within a range of the current index price. Strike prices can be selected two intervals up and two intervals down from the index price based on the table below:
| Collection Index Price | Strike Price Interval Amt | Example |
|---|---|---|
0-1 ETH | 0.05 ETH | Collection price at 0.5 ETH, Strike prices: 0.4, 0.45, 0.5, 0.55, & 0.6 ETH |
1-5 ETH | 0.1 ETH | Collection price at 2.5 ETH, Strike prices: 2.3, 2.4, 2.5, 2.6, & 2.7 ETH |
5-10 ETH | 0.25 ETH | Collection price at 7 ETH, Strike prices: 6.5, 6.75, 7, 7.25, & 7.5 ETH |
10-20 ETH | 0.5 ETH | Collection price at 16 ETH, Strike prices: 15, 15.5, 16, 16.5, & 17 ETH |
20-40 ETH | 1 ETH | Collection price at 25 ETH, Strike prices: 23, 24, 25, 26, & 27 ETH |
40-60 ETH | 1.5 ETH | Collection price at 45 ETH, Strike prices: 42, 43.5, 45, 46.5, & 48 ETH |
60-80 ETH | 2 ETH | Collection price at 74 ETH, Strike prices: 70, 72, 74, 76, & 78 ETH |
80-100 ETH | 2.5 ETH | Collection price at 90 ETH, Strike prices: 85, 87.5, 90, 92.5, & 95 ETH |
100 ETH and up | 5 ETH | Collection price at 200 ETH, Strike prices: 190, 195, 200, 205, & 210 ETH |
Ethereum on the Arbitrum network will be used as collateral and will be set/required prior to trading of the option contract. The underlying NFT asset will never be used as collateral and you do not need to own any of the items within the collection.
The collateral formula:
= collateral amount
= size of the contract
= chosen strike price
= 50% collateral requirement
All bids and asks will be listed on 0xdx's DeSpec Order Book. Buyers and sellers can transact here directly. Bid and ask prices will exist for all active option types.
Bids are open buy orders represented in green within the orderbook section.
Asks are open sell orders represented in red within the orderbook section.
Buyers and seller will submit limit orders at premium values (at the collection level) that they see fit with several factors in mind, including current market conditions, the current bid-ask spread as well as individual's speculative outlooks.
Our DeSpec Order Book will contain the current bid and ask prices for each option type. Open orders and the current bid-ask spread can be used to determine the order price for your position and how much liquidity is available for each option type.
The contract will be automatically settled upon expiry via Smart Contract logic, similar to European style options. The DeSpec trader will then be able to exercise on or after expiry to receive their payout.
European style options are cash-settled and 0xdx will be taking the same approach, settling in the fungible asset of ETH.
The size of the contract is set by the Buyer or Seller of the options contract. Sizes can be as low as 0.001 with no upper bound. For example, you can speculate on 0.08Bayc, 1Azuki, or 3Pudgy.
Note: the collateral you are required to post scales with the size of the contract.
0xdx uses collection level prices instead of individual NFT prices. A volume weighted average price (VWAP) with outliers removed will be used to settle contracts. We have decided against using floor prices as a price measure to settle contracts as we aim to mitigate price manipulation.
For more information about our collection level prices and our oracle:
Platform ArchitectureThe payout formula for the buyer of a put contract:
The payout formula for the buyer of a call contract
= payout in ETH
= total collateral provided
= chosen strike price
= oracle determined price at expiry
= size of the contract
= 2% or 0.02 - 0xdx platform fee
The payout formula for the seller of a put contract:
The payout formula for the seller of a call contract:
= seller payout in ETH
= orderbook price on 0xdx
Below are some scenarios to consider from a fee perspective:
If a market or limit order isn't filled, there will be no fees.
On every filled/matched order, a 2.5% royalty will be applied.
Upon payout, 0xdx takes 2% of the buyer payout amount.
Note: if upon payout the seller has kept all of the collateral that they posted, there will be no fee.
Current price of the collection is at 15 ETH.
Total collateral would be:
If at settlement in 14 days the oracle price for AZUKI is at 13 ETH, the buyer and seller breakdown is below:
The Buyer of this contract is "In the money" because he/she correctly speculated that the price of collection price of AZUKI after 14 days would be below 15 ETH.
Current price of the collection is at 70 ETH.
Total collateral would be:
If at settlement in 28 days the oracle price for BAYC is at 120 ETH, the buyer and seller breakdown is below:
The Buyer of this contract is "In the money" because he/she correctly speculated that the price of collection price of BAYC after 28 days would be above 75 ETH.
