Buy hedge and reduce hedge cost by earning fees in the AMM Users that wish to buy hedge for their assets can buy put options and then provide them back to the pool as liquidity. It is possible because our AMM allows one-sided deposits and uses a concept of exposure instead of position throughout the pool life cycle. By doing so, the user may earn fees with the options provided even if the option gets to expiration out-of-the-money. The user can incur impermanent loss or gain, depending on the pool's circumstances during the liquidity provision period.
Earn trading fees and be delta hedged
By minting options and adding the options tokens as liquidity to the pool, a user is delta hedged and will gain trading activity fees. By the end of the period, the user can expect to receive back a position (that could be a combination of options tokens and stablecoins) that reflects their initial exposure, added trading fees, and impermanent gain or loss, depending on the pool's circumstances during the provision period.
Increase yield while selling options Options sellers can use interest-bearing tokens as collateral and sell the options tokens directly in the AMM to receive the premium. That way, they accumulate yields from aTokens (currently integrated with Aave) and the premium for selling the option.
There are multiple ways of expressing one's belief in a portfolio. For instance, if a user is bullish in a particular asset (for example, ETH as the underlying asset), they can sell puts or buy calls of the asset.
A put option represents the right to sell an asset in the future. When a user mints and sells a Put option, they sold that right to a buyer. They commit to buying the underlying asset from the option buyer at a specific price. That means that the option seller must be confident and comfortable about buying the underlying asset at the strike price. Options sellers expect to receive a premium to perform such activity.
Mint and Sell a Put Option
By minting and right away selling an option in the AMM, a user is closer to a conventional experience where they will immediately receive the premium at market price. Also, by directly selling the options tokens, the user immediately takes on the position "sold in Put options" and will uphold this position until the end of the expiration window. If it decides to leave the position early, this user has to buy the equivalent amount of options tokens in the market and "unmint" his options. Note that in the latter situation, the user is exposed to the difference in the option premium.
For example, if a user is minting one put option on ETH:aDAI, strike 500 December 21st, they will lock 500 aDAI as collateral and sell it in the AMM for the current market price - let's assume it's 5 DAI. If the user decides to leave the position after a while (and before expiration), it has to "buy back" options tokens in the market and unmint its position. The options tokens could be worth 2 DAI or 11 DAI, depending on the market conditions.
If you want to learn more about price discovery, check Pricing.
A call option represents the right to buy the underlying asset at the strike price in the future. Buying a call option allows the user to get exposed to an asset at a certain price level without necessarily holding that asset in the present moment. The user can buy call options tokens directly from the AMM and keep them in their wallet until expiration. If the user wants to leave the position early, they can resell the options on the AMM at market price. If the user held the options tokens until expiration, it could decide to exercise the options.