Discovering the Options Module: Most frequently asked questions
Hey Chaingers, since we’ve had a lot of questions regarding the options DEX we’ve decided to put together the most frequently asked ones and shed some more light on the use of Options and what you can do with them and how.
Please keep in mind this is an advanced trading tool and while the concept is fairly easy to understand & the Chainge app has made it extremely easy to use, some research is necessary before diving into it and starting trading.
Options are one of the most profitable trading tools, which is why advanced traders & institutions constantly make use of them, but if used unwisely or without any info about what they are, Options can also generate loss.
Having this said, let’s get to answering your questions:
1. When you time frame an asset, and then write call or put options to add to a liquidity pool, do you get your original assets back upon expiration?
When a user writes options, he is putting time framed assets as collateral in a smart contract and the smart contract will mint the corresponding number of options token to this user.
Let’s take CHNG-CO and CHNG-PO as example.
In the case of CHNG-CO, when your TF-CHNG (as collateral) is exercised, the exerciser is literally interacting with the smart contract by burning his CHNG-CO, sending you USDT and taking away your TF-CHNG at the exercising price. While in the case of CHNG-PO, when your TF-USDT (as collateral) is exercised, the exerciser is interacting with the smart contract by burning his CHNG-PO, sending you CHNG and taking away your TF-USDT at the exercising price.
2. Just tried to write a BTC-PO. So, the next step after writing an option, is to sell it in the DEX, right? So, when I sell the PO I wrote, I will immediately get the premium or it is just listed in the pool for a buyer to purchase?
After you write the options, there are 3 things you could do.
1) Keep the options in your wallet and wait for the best price to sell.
2) Use BTC-PO and USDT to add liquidity to earn farming rewards.
3) Send it to someone else, maybe your friend.
If you sell it directly to the DEX, actually you are selling this option (BTC-PO) to liquidity pools and you get the USDT instantly, which is what we call the options premium.
If you use the BTC-PO and USDT in hand to add liquidity, it means you are farming to get CHNG rewards and waiting for others to buy BTC-PO from you or sell BTC-PO to you.
In AMM, liquidity is the actual counter-party when others are buying and selling.
3. After I successfully wrote the option, I saw that there was a note stating that I bought the PO. And if the number of PO written is added to the number of PO that I never bought, it equals to the total number of PO I just wrote. Why is it that it was said to have bought it?
There are three sections that might be displayed as options balance:
1) Written 2) Bought 3) Redeemable
But it might be clearer to explain it like this:
The balance shown in the “Written” section means you have this number of options which you could cancel and take back the time framed assets in collateral immediately, without any fees.
The balance shown in the “Bought” section means you have this number of options which you have the right to exercise before the due date and this balance will disappear after the due date.
The balance shown in “Redeemable” section means you have this number of options from which you could redeem the corresponding time framed assets in collateral only after the due date. This is the amount of options you have put in liquidity (if you did) minus the number of options that has been exercised.
The amount in the “Written” section plus the amount in the “Bought” section is the total number of options you can sell at this moment.
4. I TF’d a few Tokens to experiment, received instant rewards, and then wrote CO with them. Finally, I sold the calls — receiving 30% of the value of my original assets. Was that the option premium I received and will I get 100% of today’s value upon expiration — plus any tokens that weren’t exercised? Or, did I get a bad deal or was this a slippage issue?
The option premium you received is exactly what you get from selling your call options. If no one exercises your options before the due date, you could still redeem the time framed assets which were your reward.
5. I bought 5000 dollars worth of CHNG, Time Framed them and then wrote Call Options. If i want to sell my CHNG-CO I only receive 1540 USDT? Why?
As mentioned before, the 1540 USDT is the options premium. The rest is the collateral you put in the smart contract when you wrote the options. If your options get exercised, you will receive USDT at the exercising price. If your options never get exercised before the due date, you can of course redeem the time framed assets from the smart contract after the due date.
6. Is a TF asset that you received from the cancellation of a purchased option still yours after the original option’s expiration?
If you never wrote the options and only bought options, it is not cancellable and it can only be used to exercise. The reason why you can’t cancel them is that you have written the same type of options and put them in liquidity and they were not exercised.
However, cancelling options always means you take back the time framed assets from the smart contract, (which you put it in when you wrote the options)
7. Are you planning to add a web-interface for the Chainge Options DEX?
No, because for a web-interface DEX, you always need a wallet to connect so that you could operate. But there are no other wallets supporting cross chain roaming, only Chainge does. That’s why it doesn’t make any sense to just put our options DEX on the web.
8. Will it be possible to have something like a position builder? Or any other discovery of options or calculators? (also stats like open interest, iVOL and premiums would be useful)
I believe you have already noticed Chainge is offering a unique model of a decentralized options platform.
For the first time in finance history, users can write options by themselves. None of the other Options platforms allow retail traders to write options.
Moreover we are the first ones to use liquidity farming in order to attract liquidity in the Options DEX - which is always a problem in today’s options market.
So, we aimed to make all of this as simple as possible. We are currently offering only one exercising price and only one exercising due date in order to not confuse the users.
However, when our Options platform will become more popular, we will add more tools to assist users in making better financial decisions when trading options.
9. I’m seeing a message about the option disappearing after the due date. What exactly happens on the due date? Automatic delivery of the underlying? Equivalent in USDT? If not, the users need to have reminders that an option should be exercised.
The options will disappear if they are not exercised by the due date. But the original options writers whose options are not exercised will be able to redeem the time framed assets from the smart contract manually (which were used as collateral for exercising). There will be “three dots” next to the “Redeemable” section for users to do so at that time.
There won’t be a reminder because options holders need to make the decision of whether it is profitable to exercise the options or not.
If users don’t want to follow up on what happens to the price, they can sell it before the due date or choose not to buy it at all.
10. If I provide FSN-CO / USDT liquidity is there any impermanent loss?
There might be huge impermanent loss in a pair of options pair like FSN-CO with USDT. Because when the FSN price soars, actually you are selling your FSN-CO to others when others are buying. And when it is approaching the exercising due date, the value of options may shrink quickly as well if the underlying assets don’t exceed the exercising price. But this is something that has to be taken into consideration by the user when making the choice of adding liquidity as it can also bring huge profits - depending on the price movement.
The only pairs that have no impermanent loss in Chainge, are futures pairs. So while choosing Futures pairs is safer, choosing Options pairs can be a lot more profitable if your predictions match future price movements.
11. What’s the risk when adding liquidity to CHNG-CO / USDT pool?
1) If the CHNG price rises a lot and your CHNG-CO in the liquidity pools are bought by others, you will lose the opportunity of earning income higher than the exercising price for the number of options you sold.
2). When getting closer to the end of this year, and the options approach the expiration date, a lot of holders will sell the CHNG-CO to the pool. Because after the due date, the CHNG-CO will disappear.
12. Are Options similar to a betting mechanism? (meaning I am betting on the future value I think an asset will have?)
To some extent, you could say so. Because if you want to long an asset, you can buy its call options. And holding the call options of an asset will always have much better gains than just holding the underlying assets with same amount of money.
And if you want to short an asset, you could buy its put options.
13. What are in your opinion the most frequent mistakes a user can make when using the Options module?
1) You might not be aware that when you see that an option’s price is highly unbalanced, you can actually write options by yourself and sell them first. And when the option’s price goes down, you can close your position.
2) You might not be aware that if an option’s price is very close to or even higher than the price of the underlying assets, you can arbitrage by buying underlying assets and writing options by yourself to sell.
3) You might not be aware that when you buy an option, you have already paid the premium. It might not be profitable for you to exercise them even if the underlying asset’s price exceeds the exercising price. You have to wait for the price to be high (or low enough) for exercising of the Option to make sense.
4) You might not be aware that the call options’ price moves in the same direction as the underlying assets’ price while the put options’ price moves in the opposite direction of the underlying assets’ price. And here there are a lot of arbitrage opportunities, as you can write/buy/sell and leverage both call and put options at the same time.
5) You might not be aware that usually you could just earn money by selling options at a higher price after you buy it. The action of exercising options is usually taken only for arbitrage and closing your position when the due date is approaching.
14. When I sell an Option in the Options DEX do I get anything after the expiration date as well?
It depends. There are two scenarios:
1. If you sell an option which you bought, you have already made money by selling it. And nothing will happen afterwards. Selling is basically you closing your position.
2. If you write an option and sell it to get the premium, then you will see two situations:
a) your time framed assets in the smart contract as collateral get exercised, and you will get USDT (if you sold call options) or assets ( if you sold put options) at the time when your options are exercised.
b) your time framed assets in the smart contract (as collateral) never get exercised before the due date, so you can redeem them manually after the due date.
15. How do I go about writing an option?
16. Where can I check the Options DEX Liqudity Pools APYs?
On the website in the Market section -> Liquidity pools
17. If I don’t exercise an option and leave it in the pools will it disappear and I’ll only have the USDT remaining in the pools?
If you leave the options and USDT in pool, of course you will get CHNG rewards according to the APY, but your options could be bought by others when the underlying assets’ price changes or your USDT might be taken by others when others dump options to pools, especially when the due date is approaching.
18. Is an option’s exercising price predetermined by Chainge? What is it based on?
Yes. Let’s take CHNG-CO as an example.
Why did we decide the CHNG-CO exercising price to be 0.16 USDT?
The logic behind it is that we want both the buyer and the writer to feel comfortable. Only when both feel comfortable, there be more users trading in DEX.
Let’s suppose if we decide the exercising price for CHNG-CO to be 16 USDT. The writer would be very happy because he thinks it would be a very low chance that his option would be exercised. Any CO sold is almost pure profit. But for the buyer, who would buy this CO when the current CHNG price is 0.1?
But 0.16 is different, some people who long CHNG would feel it’s absolutely possible CHNG price goes higher than 0.16, given that the last all time high price was around 0.16.
So, he could pay just a little to buy CHNG-CO and enjoy all the profit above 0.16.
For sellers, they would think 0.16 was the all time high and if the CHNG price might not go above 0.16 before the end of this year. What he sells CHNG-CO for is pure profit. Even if it does go higher, it is just like him selling CHNG at 0.16, which is already higher than current price.
That’s the reason we made it 0.16.
19. If the token never reaches the exercising price then I only stand to lose, correct? as I will lose the money I paid to write the option?
If the token price never reaches the exercising price, it won’t be profitable to exercise the options, which means if you have bought any options, they will be useless. And the premium you have paid is just wasted.
But the original writer of the options who also has sold his options token for the premium will be very happen because the premium he gets is pure profit. And after the due date, he is able to take back the corresponding time framed assets which he put in the smart contract as collateral to write the option.
20. Before the end of the year pretty much everyone will take out the options from the liquidity pools to either exercise them or sell them. What will happen then? Won’t this create a huge unbalance in the pool or in the asset’s price?
For the options which did not reach the exercising price, the pool will be close to zero. And trading will be less.
But it’s totally fine, that’s the end of those pools. We will have new options with new exercising prices and new exercising dates for next year.