Option Scalps v2 maintains the original functionality of v1 - please familiarize yourself with the v1 design here. v2 introduces limit orders on opening and closing which allows a user to earn swap fees rather than pay them and more precise price execution.
Good mnueenis my little nuggets. It is once again I, Nutoro, CEO of Diamond Pepes Pty Ltd., taking time out of his busy day to inform you about a recent change to one of our products.
The products in question, I hear you ask? Option Scalps!
Let’s take a look at why we are changing things up and what is being done.
Proceed, people.
TL;DR
- Traders now have the option to set limit orders on opening and closing
- If a trader users a limit order, they will receive swap fees corresponding to their position size in the event that it fills
- Limit orders provide more precise price execution and lower fees for our beloved traders
- Traders may still opt for market orders (i.e. execute immediately at spot price) but should be wary of swap fees
The Problem with Option Scalps v1
When Option Scalps v1 was released a few months ago, it worked as intended. When a trader opens a long position, they pay a premium to $USDC writers and this $USDC is immediately swapped for $ETH (for ETH-USDC; $ARB for ARB-USC; opposite occurs for shorts i.e. $ETH swapped for $USDC). Trader profits are paid from the relative appreciation of $ETH while losses would be paid from the trader’s margin.
The beauty of Option Scalps is that liquidity providers are never exposed to trader performance, with profits paid from the relative appreciation of $ETH and losses made whole from the trader’s margin. This allows them to simply provide liquidity and accrue premiums in a risk-minimized manner.
However, the swap mechanic from $ETH <> $USDC routes through Uniswap v3 pools which charge 0.05% fees on transactions. When we introduce leverage of up to 110x this can quickly eat into a trader’s profits - a 110x leveraged position will be immediately down 5.5% (110 * 0.05%) on opening. When we consider the fee is paid on close as well, we have ourselves a proverbial pickle.
The Solution of Option Scalps v2
Scalps v2 will introduce Limit Orders, allowing a trader to set a price at which their position will be opened and/or closed. This allows for far more precise control over trades which is especially important for short time frame aficionados.
The so-called cherry on the proverbial top of this new design is that rather than paying fees when a position is opened or closed, the trader receives fees.
Wait a damn minute. Receive fees?
Wot mean? Wot mean indeed.
Limit Order Option Scalps - an Example
Pretend the spot price of $ETH is $1,800 and you want to open a $100k long position with 100x leverage. Your limit order is set to trigger when $ETH is $1,750.
As per our Option Scalp design, $100k will be borrowed from the $USDC liquidity pool to open your position. However, rather than swapping for $ETH directly on the spot market, $100k $USDC will be LPed single sided at 1,750USDC/ETH.
If $ETH hits $1,750, the position is converted into $ETH and your leveraged long position is opened. Since you are LPing, you receive the fees from Uniswap rather than paying them as per our v1 design.
On the other hand, if $ETH does not hit $1,750, the LP position will still be 100% $USDC. This amount can simply be returned to the $USDC liquidity pool as though nothing had happened. For the duration a limit order is open, the trader will pay a fixed APR of 18.5%. Note that the premium will only be paid in the event a limit order is hit.
When a user closes their position, they will have the option to either market close or set a close limit order. If they choose the latter, in the event the limit order hits they will once again earn swap fees.
Revolutionary. Mind-breaking. Incredible.
Closing Comments
With our new Option Scalps v2 design, we aim to bring more predictable entries and lower fees for our beloved traders. Of course, if users want to open or close positions immediately they have the option (kekLMAO HAHAHAHA) to do so without using limit orders.
Regardless, the choice is theirs.
Until next time, my beloved readers.
Warm regards,
CEO
Just wanted to give a shout out to all the boys (men, rather) of the Watercooler - thanks for sticking by The Company throughout the past year and a bit. Life wouldn't be the same without each and every one of my darling little nuggets and just wanted to take a moment to express how much you all mean to me.
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About Dopex
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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