Put Options
P2P ERC20 put options written, bought, settled on the blockchain.
Last updated
P2P ERC20 put options written, bought, settled on the blockchain.
Last updated
Xeon Protocol Š 2024
A Put Option gives the taker or buyer of the option, the right, but not the obligation, to sell a specific amount of an underlying assets (ERC20 tokens) at a predetermined price (strike price) within a specified period.
A put option provides a form of insurance or hedging against potential price declines.
The ERC-20 Put Options tool enables users to write and take put options using two different tokens: a base token for the writer and a quote token for the taker. Specifically, the writer uses the base token as collateral, and the taker pays with the quote token. If the taker profits (the market price of the base token drops below the strike price), the payoff is deducted from the writer's collateral.
Read PL/ Calculations for a deeper understanding into settlement.
P/L CalculationsUnderlying assets or tokens to be used as collateral.
Strike price quoted in pair/quote currency of the underlying token.
Expiry date or duration.
Cost or premium to buy hedge, is priced in quote currency of the underlying token.
Hedge writer always has to provide collateral, thus the payoff (if any) to the taker is always in underlying assets, whereas for writer payoff is always in quote currency of the underlying tokens.
Screenshot
Example, scroll to Put Options.
P/L CalculationsWriter supplies ERC-20 collateral when writing the Call Option.
Writer dictates Cost to Takers.
Taker pays cost directly to Writer when buying the Call Option.
Both parties can initiate a request to topup collateral {Topup Requests}.
Collateral is only moved from both parties balances when the party accepts a request.
Taker only can exercise the option before the expiry date.
After expiry date has passed, Taker has no right to exercise the option.
Unexercised options are deleted by Miners or the Writer.
If a miner deletes an expired hedge a fee is charged to Writer.
If writer deletes an expired hedge no fee is charged to Writer.
Both parties can also request to change the expiry from future to current date.
No caps on deal terms: collateral amount, cost amount, duration and strike price.
Collateral Depletion:
The writer's collateral continuously declines as market conditions favor the taker.
The collateral is used to cover the difference between the market price and the strike price, effectively paying the taker the profit.
Profit Increase:
The taker's profit grows as the market price of the base token falls below the strike price.
This profit is realized when the taker exercises the put option.
Break-Even Threshold:
Timing is Crucial:
Takers must be vigilant about the declining collateral value.
They must exercise their rights to the option before the writer's collateral drops below a certain break-even threshold. If the collateral value falls too low, there may not be sufficient funds to cover the payoff, leading to potential losses for the taker.
