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0xdx Options

Background on options and details for 0xdx options.

Background on Options Contracts

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.
Image by Julie Bang © Investopedia 2019
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:
  1. 1.
    American style - allow for buyers to exercise their option at any time before the option’s date of expiration.
  2. 2.
    European style - buyers can only choose to exercise their option on the date of expiration.
    • ⚠️0xdx uses European style options ⚠️
  3. 3.
    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)
Image by Julie Bang © Investopedia 2019
Image by Julie Bang © Investopedia 2019

0xdx Options

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.

Expiration Date

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.

Strike Price

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

Collateral

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:
c=nsmc = n\: •\: s\: •\: m\:\\
cc
= collateral amount
nn
= size of the contract
ss
= chosen strike price
mm
= 50% collateral requirement

DeSpec Order Book

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

Bids are open buy orders represented in green within the orderbook section.

Asks

Asks are open sell orders represented in red within the orderbook section.

Determining the Order Price (Premium)

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.

Payout/Settling the Contract

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.

Order Size

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.

Price Used to Settle 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:

Payout Formula

The payout formula for the buyer of a put contract:
BΞ=min(c,max[0,(spe)n])(1R)B_Ξ = min(c,max[0,(s-p_e)\: •\: n])\:•\: (1-R)
The payout formula for the buyer of a call contract
BΞ=min(c,max[0,(pes)n])(1R)B_Ξ = min(c,max[0,(p_e-s)\: •\: n])\:•\: (1-R)
BΞB_Ξ
= payout in ETH
cc
= total collateral provided
ss
= chosen strike price
pep_e
= oracle determined price at expiry
nn
= size of the contract
RR
= 2% or 0.02 - 0xdx platform fee
The payout formula for the seller of a put contract:
SΞ=c[min(c,max[0,(spe)n])]+premiumS_Ξ= c-[min(c,max[0,(s-p_e)\: •\: n])] + premium
The payout formula for the seller of a call contract:
SΞ=c[min(c,max[0,(pes)n])]+premiumS_Ξ= c-[min(c,max[0,(p_e-s)\: •\: n])] + premium
SΞS_Ξ
= seller payout in ETH
premiumpremium
= orderbook price on 0xdx

Fees

Below are some scenarios to consider from a fee perspective:
  1. 1.
    If a market or limit order isn't filled, there will be no fees.
  2. 2.
    On every filled/matched order, a 2.5% royalty will be applied.
  3. 3.
    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.

0xdx Option Examples

A put option for 0.1 AZUKI at a 15 ETH strike price with expiry in 14 Days.

Current price of the collection is at 15 ETH.
Total collateral would be:
c=0.1150.5=0.75ETHc = 0.1\: •\: 15\: •\: 0.5\: =0.75 ETH
If at settlement in 14 days the oracle price for AZUKI is at 13 ETH, the buyer and seller breakdown is below:
BΞ=[min(0.75,max[0,(1513)0.1])](10.02)=0.196ETHB_Ξ = [min(0.75,max[0,(15-13)\:•\: 0.1])]\: •\: (1-0.02) = 0.196ETH
  • 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.
SΞ=0.75min(0.75,max[0,(1513)0.1])+premium=0.55ETH+premiumS_Ξ = 0.75 -min(0.75,max[0,(15-13)\:•\:0.1]) + premium = 0.55ETH + premium

A call option for 0.5 BAYC at a 75 ETH strike price with expiry in 28 Days.

Current price of the collection is at 70 ETH.
Total collateral would be:
c=0.5750.5=18.75ETHc = 0.5\: •\: 75\: •\: 0.5\: =18.75 ETH
If at settlement in 28 days the oracle price for BAYC is at 120 ETH, the buyer and seller breakdown is below:
BΞ=[min(18.75,max[0,12075)0.5])](10.02)=18.375ETHB_Ξ = [min(18.75,max[0,120-75)\:•\: 0.5])]\: •\: (1-0.02) = 18.375ETH
  • 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.
SΞ=18.75min(18.75,max[0,(12075)0.5])+premium=0ETH+premiumS_Ξ = 18.75 -min(18.75,max[0,(120-75)\:•\:0.5]) + premium = 0ETH + premium
Last modified 10mo ago