For option trading aficionados, there is no greater thrill than watching your asset teetering on the brink of your chosen strike price.
1. Will it expire ITM so you can tell your beautiful mother that you are one step closer to making it?
2. Will it expire OTM and you are forced to extend your basement lease for the foreseeable future?
In any case, the day of option settlement is one fraught with high stakes and high emotions. With Dopex’s brand new product, we bring settlement day anxiety to a daily basis.
Introducing: Zero Day to Expiry (“0dte”) Options!
- 0dte options expire on the day of purchase allowing for extremely short time frame volatility trading
- Writers deposit $USDC for puts or the base asset for calls (e.g. $DPX or $ETH)
- Buyers purchase 0dte option spreads (caps upside in exchange for cheaper premiums)
*For our 0dte UI walkthrough, please see *here.
To access the 0dte app, please click here.
Wot mean 0dte?
0dte options are as the name suggests - they are simply options that expire on the day of purchase.
This allows traders with extremely short time frames to trade in a cheap manner (remember that the premium for an option is heavily influenced by time to expiration).
0dte Options on Dopex
Decentralized 0dte options require decentralized solutions.
Let’s take a look at how our beloved Dopex will be tackling this problem through the power of the blockchain!
1. Providing liquidity for 0dtes
Similarly to our SSOVs, LPs deposit $USDC to write put options or the base asset (e.g. $DPX or $ETH) to write call options.
LPers will not be required to select a strike price. Rather, liquidity will be provided in a range from 0-20% OTM. The exact strike price will be locked in when the option purchaser chooses to make their purchase. 20% is the current max OTM percentage variable but may be adjusted once governance is live.
For example, if the spot price is $1,500, calls may be purchased from $1,500 to $1,800 (1,500 * 1.2) whilst puts may be purchased from $1,500 to $1,200 (1,500/1.2). Premiums and settlements will be paid based on the weighted average strike price during each epoch.
Providing liquidity on 0dtes uses a pool-based system which means the options you write depends on how liquidity is utilized by buyers on a first-come-first-serve basis (earlier deposits will be utilized first). You will receive premiums from purchasers and may need to pay settlement if options expire ITM. The portion of liquidity that is unused will not receive premiums and also not be required to pay settlement.
0dtes use daily epochs which means settlement occurs at the same time every day with liquidity automatically rolling over into the next epoch. LP deposits have a withdrawal cooldown period of 1 epoch and can only be withdrawn during the next epoch.
2. Purchasing 0dtes
Purchasing 0dtes is slightly different to our standard SSOVs and requires two steps:
1. Purchase (long) an 0dte at your selected strike price
2. Sell (short) an 0dte at your selected strike price which is more OTM than your longed strike price (higher strike for calls and lower strike for puts)
This creates a strategy known as an option spread which can be seen below (pictured is a call option spread with $1,500 long strike and $1,700 short strike):
For traders, this means you will have a max payoff of [Short Strike - Long Strike] for calls and [Long Strike - Short Strike] for puts.
The rationale for this is three-fold:
1. Short-term price action is not expected to be super volatile (buyers may choose further OTM short strikes if they want to capture more upside)
2. Cheaper for buyers as premiums from short offset premium from long
3. Loss on writer deposits is capped allowing for more efficient utilization of liquidity
Margin Safety Factor
When an 0dte option is purchased, a corresponding amount of liquidity from the LP pool will be locked based on:
Liquidity from LP locked = Max Payoff Margin Safety Factor
Where the Max Payoff is the difference between the purchaser’s chosen strikes and the Margin Safety Factor is an adjustable multiplier on the max payoff which is currently set to 300%.
For example, on an $ETH call with a long strike of $1,500 and short strike of $1,700, the max payoff is $200. The liquidity from the 0dte $ETH LP pool to be locked will be $600 (200 * 3).
Premiums are priced according to the Black Scholes Model with the addition of a IV multiplier which is given by the following:
IV multiplier = 1+30% * Current Utilization
Current Utilization refers to the amount of available liquidity which is currently used. The IV multiplier is applied to the IV for a specific strike.
For example, if the Current Utilization of the $ETH call liquidity pool is 50%, the IV multiplier is 1.15. This would mean if a trader wants to purchase $ETH call spreads with 90 IV, they would pay a premium based on 103.5 IV (90 * 1.15).
The IV multiplier is used to simulate slippage and reduce risk for LPs during times of high utilization.
Mr Warren Buffet back at it again with the red hot bars. Truly incredible.
CEO hopes that you will enjoy using so-called “0DTEs” for shorter time-frame trading. As usual, if you have any questions feel free to DM 0xSaitama directly and he will happily attend to any queries.
Until next time, my budding students.
CEO (Chief Education Officer, not to be confused with Nutoro our handsome Chief Executive Officer)
Oh yes indeed hehe
Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner.
Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.
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Dopex reserves the right in its sole discretion to amend or change or cancel this announcement at any time and for any reasons without prior notice.
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