Swapping Options Premiums for a Payoff Expected at Settlement
How Liquidity Provision Works on Divergence v1
The position has 5 short interest on call and 3 short interest on put. So, the pool reserves 5 collateral (which would include the collected option premiums) upon liquidity removal. \ \ If the calls expire worthless, the LP can withdraw 2 collateral from the expired net shorts. Otherwise, the full reserved amount is paid to the call holders. {% endhint %} # Options Specs
| Terms | Specifications |
|---|---|
| Underlying | Prices, rates, and events from a decentralized oracle can be accepted as underlying. In the initial phase the underlying whitelist includes: BTCUSD, ETHUSD |
| Strike Price | To avoid the “too-many-strikes” problem, inputs are rounded to two significant figures with precision up to 8 decimals. Examples: 1) a five-figure BTC price (27001.50) will round to the fourth figure (27000); 2) a four-figure ETH price (1799.50) will round to the third (1700); 3) a doge price (if supported at 0.071535) will round to (0.071) |
| Trading hours | 24/7 |
| Expiry | The contract supports the creation of pools with settlement at UTC 8:00. Daily, weekly, and monthly expiry selections are offered in the app interface for ease of interaction. Weekly and monthly expiries occur on UTC 8:00 on Fridays. Settlement at alternative times is possible. |
| Collateral | Initially, a whitelist of ERC-20 tokens is supported as quote assets for digital options. This whitelist can expand as demanded by the community. Such a whitelist is necessary for this stage to detect any unforeseen issues and concentrate liquidity. It can be removed via admin functions of the smart contract. Collateral tokens of 18 decimals are supported by default. Those with other decimal places, while may be supported, are not recommended for use as collateral due to possible loss of computational precision. The initial whitelist includes WETH, USDT, DIVER, and Ditanic test coins. |
| Quotation | Options are quoted per unit of collateral, with a minimum price of 0.01 collateral and a maximum of 0.99 collateral. e.g., An options pool created using USDT will trade options from 0.01 to 0.99 USDT. |
| Settlement | Options tokens are exercised at expiry. Depending on the collateral in use, options are cash-settled when a stablecoin is used as collateral or physically settled when an asset token such as WETH is used as collateral. A fixed payout of 1 collateral unit is claimable per each in-the-money option. A call (Spear token) is in-the-money when the underlying price settles above or equal to the strike price; otherwise, a put (Shield token) is in-the-money. A liquidity position will pay out 1 collateral for each shorted in-the-money option. For each out-of-money option, liquidity providers can reclaim 1 reserved collateral. |
| Settlement Price | Underlying price feed via heartbeat updates provided by Pyth. For more information, visit here. |
| Seed Deposit | For a liquidity position intended to sell 1 call (or 1 put) at the price of N collateral (0.01≤ N ≤ 0.99), the required collateral deposit is 1 - N. One can also seed 1 call (or 1 put) to a liquidity range above the current call (or put) price, to limit close this long exposure. |
| Reserved for Settlement | Anytime prior to expiry, liquidity can be removed from a position to finalize options exposure. A liquidity position can passively short both calls and puts, and collaterals must be reserved to pay off sold options, in case they expire profitably. The collaterals reserved for settlement equate to the larger short interest, be it on calls or puts; however, a liquidity provider's exposure is only limited to his net shorts in calls or puts, after offsetting call sales and put sales. |
| Position Limit | None |
| Minimum Size | None. (Each transaction costs gas, however) |
| Fees | Pools are set to a default transaction fee of 0.3% per notional. ie, for each option token sold, a flat fee of 0.003 collateral is applicable. An exercise fee of 0.15% is applied when a holder of an in-the-money option claims payoff at settlement. For more information, please refer to Fees. |
| Sell Passively at Custom Prices | Buy Actively for Immediate Execution |
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The position's PNL = 2 \* ( effective price for open shorts - buyback price) {% endhint %} After the expiry, anyone can call the contract to settle the options. If the calls (or puts) settle out of money, their open shorts become profitable. One collateral can be withdrawn for each. {% hint style="info" %} A position sells 3 calls and 5 puts at expiry. The LP is said to have net shorted 5-3=2 puts. If puts expire out-of-money, its LP can settle the position and withdraw 2 collateral. If the puts expire profitably, however, the collateral reserved for settlement goes to the put holders. No collateral can be withdrawn by the LP. {% endhint %} The following provide step-by-step guides about using the protocol interface to:
| Short Calls | Short Puts |
|---|---|
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After finalizing a liquidity position under "Open Orders", go to "Positions" to close it.
You've got it. Just say it.
| Distribution Type | Amount | Percentage % |
|---|---|---|
| Distribution Type | Amount | Percentage % |
| Seed Round ($0.018) | 50,000,000 | 5.00 |
| Private Round ($0.025) | 80,000,000 | 8.00 |
| Strategic Round ($0.035) | 20,000,000 | 2.00 |
| Public Launch (on Balancer) | 15,571,703 | 1.56 |
| Community Rewards | 340,000,000 | 34.00 |
| Reserves | 214,428,297 | 21.44 |
| Ecosystem Fund | 100,000,000 | 10.00 |
| Developers & Early Backers | 150,000,000 | 15.00 |
| Liquidity Provision Fund | 30,000,000 | 3.00 |
| Total Supply | 1,000,000,000 | 100.00 |