In last week’s article ”The Exchange Protocol of Everlasting Options”, we introduced a decentralized exchange protocol for everlasting options, a new type of derivative recently proposed to give traders long-term options exposure without the need of rolling positions.
To help users get familiar with Deri’s everlasting options, we’ll take a deep dive into and showcase four Everlasting Options trading strategies.
Everlasting Call Options
Speculation without downside risk
Bob predicts that the price of BTC will rise significantly beyond the strike price of $20,000 and intends to profit from such a judgment.
Bob just needs to buy BTCUSD-20000-C Everlasting Options and keeps paying the funding fees (premium).
If the price of BTC went to $30,000, the mark price of the call options would go up by around $10,000， Bob would have an unrealized PnL of $10,000 for the call option he holds. He could sell the everlasting call options to realize a profit of $10,000.
Since there can be no limit as to how high the price of BTC can be, there is no limit to the maximum profit possible if Bob keeps paying the funding fees.
If Bob was wrong in his assessment and the BTC price went below $15,000, Bob would sell his positions and his total loss would be the funding fees paid.
Covered Call Strategy
Alice holds 1 BTC and would like to sell the BTC at $100,000.
Alice just needs to sell BTCUSD-100000-C Everlasting options and she would only need to keep sufficient collateral in her margin account. As long as her short position is maintained (i.e. her balance is above the maintenance margin requirement), she keeps collecting premium funding from the long positions.
If the price of BTC went to $100,000, Alice would have a PnL for the BTC spot she holds and the funding fee collected.
If the price of BTC didn’t go to $100,000, Allice’s overall PnL would be the funding fee collected.
Everlasting Put Options
Hedge against downside risk
Alice holds 1 BTC and would like to ensure that she would always be able to sell her position for at least $20,000 per BTC.
Alice just needs to long BTCUSD-20000-P Everlasting Options covering her spot portfolio and keeps paying the funding fees.
If the price of BTC went to $15,000, the mark price of the put option would immediately go up by around $5,000, Alice would have an unrealized PnL of $5,000 for the put option she holds. She could sell the everlasting put options to realize a profit of $5,000 to compensate for her loss due to the BTC price going to $15,000.
If the price of BTC went to $30,000, Alice would have a PnL for the BTC spot she holds.
Carry trade (trade to earn carry)
Bob predicts the price of BTC will not go below $20000 and would like to make profits from such a judgment.
Bob just needs to short BTC-20000-P Everlasting Options for his purpose, he would only need to keep sufficient collateral in his margin account. As long as his short position is maintained (i.e. his balance is above the maintenance margin requirement), he keeps collecting premium funding from the long position.
If the price of BTC went to $15,000, Bob would immediately suffer an unrealized PnL of around -$5,000, and his overall PnL would be funding fee collected + (-$5,000).
If the price of BTC went to $30,000, Bob’s overall PnL would be the funding fee collected.
In order to provide you with a better trading experience, we’ll have a step-by-step guide for Deri’s Everlasting Options later, stay tuned!
About Deri Protocol
Deri Protocol = (Perpetual Futures + Everlasting Options) x Decentralized.
Deri is the DeFi way to trade derivatives: to hedge, to speculate, to arbitrage, all on chain. With Deri Protocol, trades are executed under AMM paradigm and positions are tokenized as NFTs, highly composable with other DeFi projects. Having provided an on-chain mechanism to exchange risk exposures precisely and capital-efficiently, Deri Protocol has minted one of the most important blocks of the DeFi infrastructure.