🏦Introduction

vDEX offers a new generation of European option contracts. Because of the way they are structured, exercise is never a possibility. At the same time, and for the same reasons, these options will be highly liquid and it will consequently be very easy for traders to buy and sell at will, with minimal trading costs (vDEX expects to offer fairly tight bid/ask spreads compared to main competitors).

The Profit and Loss (PnL) will be computed on the same basis as for perpetual futures which means on a live, delta basis and “cash” settled in VLPs. Instead of continous settlement, perpetual options are set to settle every 8 hours. More precisely, every eight hours, you will automatically sell your option contract. You then automatically post that money as margin to get into another perpetual option with the original expiry and target price. Based on your last 8 hours’ PnL and theta (time value) losses, your margin changes, resulting in a corresdonding change of the quantity of option you are holding. This is totally new in the crypto world and works very much like trading perpetual futures whose underlying index would be the price of that option.

Furthermore, in the same vein, margin and leverage can be customised to some extent, with vDEX analytics providing guidance based on the analysis of historical market behaviours as well as current market dynamics. The margin/leverage problem can be expressed in the following terms: given the amount M of VLPs a trader is willing to put at stake as collateral (or margin) on a specific trade, what is the maximum risk exposure (position size) he can be allowed to take?

Such maximal risk exposure will be determined by vDEX in such a way that the probability for the trader to lose his margin over a certain period of time is small enough to minimise liquidation risk within that time frame:

By default, T is set to be 8 hours and ε = 10%

Once the trader knows the maximum size he is allowed to trade given his margin level, he can decide which order size he is willing to place.