P/L Calculations

This page details some trade scenarios to illustrate how we calculate profit or loss on trades.

Conditions:

We simulate the outcome of a hedge, we don't facilitate traditional hedging procedure.
Strike Price
Underlying Value of tokens is the value of tokens * token price in pair currency
Cost is premium and always in the paired currency of the underlying asset
No Risk-Free Interest Rate charged
No Implied Volatility imposed
Tokens are lockedInUse when a trade is written, or when Taker takes trade.

Scenario:

Trade Creation

Writer, Capo, owns 1000 GPU tokens.
He is unsure about the price going up further the next 30 days.
Capo Deposits 1000 GPU to the Xeon Protocol Vault.
Capo Writes a Call Option using 100 GPU tokens as underlying asset. Cost/premium 0.1 WETH. Duration 30 days. Strike price 2x from now, or strike value 2 WETH.

Trade Taking

Taker, DegenX, wants exposure to GPU tokens and sees Capo's OTC trade on the Silkroad.
DegenX is sure GPU will pump in the next 30 days.
Current market value of 1000 GPU tokens is 1 WETH.
Strike value of 1000 GPU tokens is 2 WETH.
DegenX Deposits 0.1 WETH to Xeon Protocol Vault.
DegenX Buys Capos GPU Call Option, his 0.1 WETH is credited to Capo instantly as Cost. Capo can immediately withdraw it as extra liquidity to buy more tokens.

Trade Running

Trade Settlement

4 ETH - 2 ETH = 2 ETH

Owed = Start Value - Strike Value.

Start Value = Token Price * Token Amount

Strike Value = Strike Price * Token Amount

2ETH / GPU price Per Token

Settlement function debits owed Profit equivalent in GPU tokens from Capo, credits it to DegenX. The difference is credited back to Capo.
Trade is concluded.

Trade Creation

Writer, Capo, owns 1000 GPU tokens.
He is concerned about the potential decrease in price over the next 30 days.
Capo Deposits 1000 GPU to the Xeon Protocol Vault.
Capo Writes a Put Option using 1000 GPU tokens as the underlying asset.
Cost/premium 0.1 WETH. Duration 30 days. Strike price 0.5x from now, or strike value 0.5 WETH.

Trade Taking

Taker, DegenX, wants to hedge against a potential decrease in GPU token price and sees Capo's OTC trade on the Silkroad.
DegenX is concerned GPU might dip in the next 30 days.
Current market value of 1000 GPU tokens is 1 WETH.
Strike value of 1000 GPU tokens is 0.5 WETH.
DegenX Deposits 0.1 WETH to the Xeon Protocol Vault.
DegenX Buys Capo's GPU Put Option, his 0.1 WETH is credited to Capo instantly as the Cost. Capo can immediately withdraw it as extra liquidity to buy more tokens.

Trade Running

Trade Settlement

1 ETH - 0.25 ETH = 0.85 ETH

Owed = Strike Value - Start Value.

Start Value = Token Price * Token Amount

Strike Value = Strike Price * Token Amount Equivalent in GPU

Settlement function debits the owed Profit equivalent in GPU tokens from DegenX and credits it to Capo.
The difference is credited back to DegenX. Trade is concluded.

Trade Creation

Trade Taking

Taker, DegenX, wants exposure to GPU tokens but doesn't want to by them outright because of swap tax & ethereum gas fees. He sees Capo's OTC trade on the Silkroad.
DegenX is very confident the price will go up in the next 30 days.
Current market value of 1000 GPU tokens is 1 WETH.
DegenX Deposits 1 WETH to the Xeon Protocol Vault to match the value and take the Swap.
DegenX takes Capo's GPU EquitySwap for 1000 GPU tokens, his 1 WETH is locked in as collateral the same as Capo's GPU tokens.

Trade Running

Trade Settlement

CurrentUnderlyingValue - StartingValue

The difference is taker payoff, calculated in GPU tokens and credited to DegenX's balance.
DegenX 1 WETH collateral in the Swap is also unlocked and credited back to withdrawable balance.
Capo receives the balance of the GPU tokens left after settlement to DegenX.

Note: If the price was to go down 10X, then DegenX would owe Capo

Last updated 8 months ago

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