Opyn is an Ethereum based decentralized Options trading platform, which allows you to buy, sell and create Options. It is a trustless and permissionless insurance platform that protects user’s decentralized finance (DeFi) assets from risks. There are three categories of Opyn users which are:
To understand Opyn and how it works, you must understand some terms associated with DeFi and Options trading. Below is an explanation of the words.
Options are the contract that gives you the right to buy or sell an underlying asset at a set price within a particular time frame. It is not a must to purchase or sell the underlying asset at the expiration time. You can decide to honor the contract or not.
We have two types of Options which are Call Options and Put Options. Option buyers are known as holders, while Option sellers are known as writers.
A Call Option contract gives you the right to buy a specified asset at a set price within a particular time frame. You have a choice to either accept or not, as the contract does not make it compulsory for you to buy at the expiration time. A Call Option could be a Call Option buyer or a Call Option seller.
A Call Option buyer is also known as a “Call Holder”. As a call holder, you can decide to exercise the right to buy an Option contract or not. To have the right to buy, you will pay a fee to the Option seller called the Premium.
A Call Option seller is also known as a “Call Writer”. As a call writer, you must sell an Option contract to the buyer if he or she exercises the right to buy at the strike price.
A Put Option contract gives you the right to sell a specified asset at a set price within a particular time frame. You have a choice to either sell or not, as the contract does not make it compulsory for you to sell at the expiration time. A Put Option could be a Put Option buyer or a Put Option seller.
A Put Option buyer is also known as a “Put Holder”. As a put holder, you have the right to sell an Option contract but are not obligated to do it. You can decide to exercise your right to sell or not.
A Put Option Seller is also known as a “Put Writer”. As a put writer, you do not have an obligation to buy the underlying asset at the strike price.
The money an Option buyer pays to the Option seller to buy a contract is called a Premium. It is the income a seller gets for selling a contract.
The “Bid price” is when a buyer is willing to pay a specific price to own an Option contract.
The “Ask Price” is the price at which a seller accepts to sell an Option contract. The money you are willing to pay to buy an option contract is the premium.
When exercised, the price at which a seller can sell an Option contract or buy an Option contract is the strike price.
This term is different for both the Call Option and the Put Option. For the Call Option, ITM is when the current price of an underlying asset is greater than the strike price. While for the Put Option, ITM is when the current price of an asset is lower than the strike price.
For a Call Option, OTM refers to the position where the strike price is greater than the current price for an asset. While for a Put Option, OTM is when the strike price is lower than the current price for an underlying asset.
ATM is the same for both Put and Call Options. It refers to the position where the price of an underlying asset is the same as the strike price.
Rich wants to sell 1 ETH for 3,000 USDT before 10 am on May 28, 2021. Stone is willing to buy 3,000 USDT for 1 ETH at Rich’s request. Rich pays Stone 5 USDT for having the right but not the obligation to sell his ETH. After the expiry date of May 28, 2021, Stone must buy from Rich if he decides to sell. If Rich doesn’t sell, he only loses 5 USDT and keeps his 1 ETH while Stone keeps his 3,000 USDT plus the 5 USDT.
In the above example,
The reasons for using Options differ for people. People use Options basically for:
To sell Call Options and sell Put Options, you should follow the steps below:
Opyn is an Ethereum based decentralized, trustless, and permissionless Options trading platform, which allows you to buy, sell and create Options. It is flexible, secured, and easy to use for three categories of users - sellers, buyers, and market makers to ensure against financial and technical risk in a DeFi, and also help users generate income.
With Opyn, you can buy and sell a call option, or buy and sell a put option. To start trading options using Opyn, you can use the guide in the article.
Also, read about Hegic Protocol.