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Decentralized Options


The official Fusion medium recently published an article describing how Fusion can handle Futures and Options trading through Fusion TLs and AMM. Well worth the read.

In addition to this DJ Qian explained the concept of options on Chainge further in Telegram. See below quote:


"Option is one of the most popular financial derivatives in conventional finance industry. Basics: A call option is a binding contract that allows you (as the buyer) to buy an underlying asset (goods, stocks, indexes, etc.) at a predetermined price within a set time frame, while a put option is a binding contract that allows you (as the buyer) to sell an underlying asset at a predetermined price within a set time frame. With options, in order to get that right to buy or sell a particular asset at a predetermined price, you have to pay the option seller a price, which is called the option premium. Chainge built an option market in a decentralized way, but how? Chainge is providing an online form to apply the listing of options of a certain token with requested exercising price. Once it gets approved by Chainge community by voting with CHNG (number of votes exceeds 1 million CHNG votes), it will automatically being listed in Chainge option DEX. As long as it is listed, smart contract developed by Chainge is going to support writing and exercising options in a decentralized way, which means anyone could inject tokens (eg: XYZ) to write same amount of call options tokens. (XYZCO). Thanks to Future’s time framed feature which is integrated in FRC758 protocol. The XYZCO token is time framed from present time to the end of this year. When time is in place, the XYZCO token will just disappear. But anytime before the end of this year, there are 3 things that the holder of XYZCO token could do 1. He could exercise the call option by injecting back the XYZCO token and the corresponding predetermined exercise price in USDT to receive XYZ token. 2. Keep this token in his Chainge app or send to others in the same way of other any tokens. 3. Sell the call option token XYZCO in option DEX market of trading pair of XYZCO/USDT when he feels price of XYZCO is good enough 4. Add liquidity to option DEX market in pair XYZCO/USDT. Put option is vice versa. Anyone could inject USDT to write corresponding put options token XYZPO. The number of the amount of XYZPO depends on predetermined exercising price: Amount=USDT injected/Predetermined exercising price. But anytime before the end of this year, there are 3 things that the holder of XYZPO token could do 1. He could exercise the put option by injecting back the XYZPO token and same amount of XYZ to get back the corresponding USDT according to the predetermined exercising price. 2. Keep this token in his Chainge app or send to others in the same way of other any tokens. 3. Sell the put option token XYZPO in option DEX market of trading pair of XYZPO/USDT when he feels price of XYZPO is good enough 4. Add liquidity to option DEX market in pair XYZPO/USDT. Why should a project to list option? 1. Project team or a company could write call options to motivate employees and communities to shill your projects. 2. Project team or a company could write call options and sell their token at higher price. 3. Project team could write put options to show confidence of the project to the token holders. 4. Project team could write put options to buy back token at a lower price. 5. Last but not least, Chainge 1.5 million users will be your users. Let’s use an example to explain it. Project XYZ. Current price 1 USDT. And project team write call options whose exercising price is 2 USDT. Project team could send XYZCO to employees or community members for free. Actually project team is sending them the option premium. Then all employees or community members would do everything they can to help the project or shill the project to make price move up, because the more price moves up, the more profit they could earn. If the price never reaches 2 USDT by the end of this year, project team actually lose nothing.

And of course, project team could write call options and put it in auction or Chainge Option DEX to sell. If token price of XYZ never reaches 2 USDT by the end of this year, the USDT project team gets from selling call options is pu

re profit. However, if the token price of XYZ moves up to more than 2 USDT, it means project team will be selling XYZ at 2 USDT which is much higher than current price. (1 USDT). Project XYZ. Current price 1 USDT. And project team write put options whose exercising price is 0.5USDT. No matter you sell it or send it to your community for free. Your community would believe they are safe to buy your project token XYZ. Because the put option means the project team actually commits to buy XYZ token at 0.5 USDT. As long as XYZ price never moves lower than 0.5 USDT by the end of this year, the option premium which project team gets from selling put options in Chainge option DEX is pure profit. But even price drops lower than 0.5 USDT, and holders of put options choose to exercise the put options, it only means project team is buying XYZ at 0.5 USDT which is lower than current price. What benefits could options bring to retails traders? 1. The volatility of an option (both call option and put option) is higher than its underlying token, but they are highly correlated. So it would be much more profitable to trade option than to trade underlying tokens if the price moves in your favorable direction. Let’s assume current price of token XYZ is 1 USDT, call option exercising price is 2 USDT, the call option premium is 0.02 USDT. When XYZ price moves up, the option premium moves up as well. When XYZ price moves up to 2.2USDT, call option premium would be no less than 0.2 USDT (usually it will be higher), otherwise there will be risk free arbitrage opportunities. You could find that when XYZ has 2.2X price up, the call option has 10X price up. And then if the price of XYZ moves up to 2.4 USDT, which is only less than 10% up from 2.2 USDT, the option premium would be no less than 0.4 USDT, which doubled 0.2 USDT. 2. Although trading option is more profitable than trading underlying assets when price moves in your favorite direction, just like margin trading in CEX. However, in margin trading, if the price moves to your unfavorable direction, and you do not meet the margin call, CEX can close out any of your open positions in order to bring the account back up to the minimum value. This is known as a forced sale or liquidation. That’s the end of your position. Even price moves back to your favorite direction later, you won’t get anything from it, because everything is over. Trading option is a different story, Even if price moves in your unfavorable direction, as long as it comes back before the end of the exercising deadline (the end of this year), your previous loss will be covered. 3. Retail traders could buy put option as a kind of insurance and protection of your investment. Let’s use the same example to explain this. If token XYZ current price is 1 USDT,put option exercising price is 0.5 USDT, put option premium is 0.01 USDT. Now a retail trader is holding 10K XYZ token, current total value of the XYZ token is 10K USDT, he could use 100 UST to buy 10K XYZPO in Chainge option DEX to prevent the price of XYZ drops to lower than 0.5 USDT. In this way, it is just like he buys an insurance to make his loss of the investment would be no higher than 5K USDT,because any loss higher than 5K could be covered by the profit by holding XYZPO.

4. Retail traders could also write call options or put options to sell in market if he feels the option premium is insanely high. In the same example, Let’s assume current price of token XYZ is 1 USDT, call option exercising price is 2 USDT. When XYZ price moves up to 2.5 USDT, if the call option premium is much much higher than 0.5 USDT (eg: 1.5 USDT), he could write call option by himself by injecting XYZ in smart contract and sell it in Chainge option DEX. If the option premium drops to a reasonable level, he could buy back to lock the profit and prevent his XYZ in option smart contract from being exercised. Or if XYZ price drops to lower than 2 USDT later, he even does not need to buy back XYZCO because no one will exercise the call option. Same to put options."

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