Glossary

Liquidity Provision

  • OLPs (Options Liquidity Pools): Liquidity Pools that trade as counterparties to traders' options requests based on assets provided by Liquidity Providers. They are divided into Short-term OLP, Mid-term OLP, and Long-term OLP based on expiry

  • OLP token: A token representing a share in OLP when providing liquidity. Staking OLP tokens allows Liquidity Providers to receive portions of protocol's earnings

  • Liquidity Provider: Users who supply liquidity to OLP and stake OLP Tokens to receive a share of the earnings generated by the protocol

  • OLPPV (OLP Position Value): The sum of the values of all Options Position Tokens held by OLP

OLPPV=Σi=1n(PositionValue)OLPPV = Σᵢ₌₁ⁿ (Position\:Value)
  • OLPDV (OLP Deposited Value): The sum of assets deposited through Liquidity Providers in OLP

OLPDV=i=1n(OLP Owned Tokens ValueCollateral Value from Traders)OLPDV = \sum_{i=1}^{n} (\text{OLP Owned Tokens Value} - \text{Collateral Value from Traders})
  • OLPTV (OLP Total Value): Total assets held by OLP

OLPTV=OLPPV+OLPDVOLPTV=OLPPV+OLPDV
  • UR (Utility Ratio): The ratio of deposited assets in OLP used as collateral

UR=i=1n(Collateral Value from OLP)OLPDVUR = \frac{\sum_{i=1}^{n} (\text{Collateral Value from OLP})}{OLPDV}

Options

  • Options: Options are financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before or at the expiration date

  • Call Options: financial contract that grants the holder the right, but not the obligation, to purchase an underlying asset at a predetermined price within a specified time period

  • Put Options: financial contract that provides the holder with the right, but not the obligation, to sell an underlying asset at a predetermined price within a specified time frame

  • Strike Price: The strike price, also known as the exercise price, is the predetermined price at which the holder of an option can buy or sell the underlying asset

  • Expiry: Expiry refers to the expiration date of the option, beyond which the contract is no longer valid, and the holder loses the right to exercise it

  • ITM (In-The-Money) Options: When the current market price of the underlying asset is favorable for exercising the option, resulting in potential profit

  • ATM (At-The-Money) Options: When the underlying asset's current market price is approximately equal to the option's strike price

  • OTM (Out-The-Money) Options: When the current market price of the underlying asset is not favorable for exercising the option, resulting in potential loss if exercised

Options Specification

  • UA (Underlying Asset): Asset used as price reference for a specific options position

  • Strike Price: The strike price, also known as the exercise price, is the predetermined price at which the holder of an option can buy or sell the underlying asset

  • Expiry: Expiry refers to the expiration date of the option, beyond which the contract is no longer valid, and the holder loses the right to exercise it

Pricing & Trading

  • Buy Position: Holding an options buy position token, indicating the right to buy (in the case of a call) or sell (in the case of a put) the underlying asset

  • Sell Position: Holding an options sell position token, obligating the seller to fulfill the contract terms if exercised

  • Futures Index: Reference price of UA, which is calculated based on the futures price of major CEXs and Oracle

  • Settlement Price: TWAP (Time Weighted Average Price) of UA during the 30 minutes prior to expiry

  • IV (Implied Volatility): A measure of potential price fluctuations in UA

  • Position Token: A Token that represents positions in Long/Short Call/Put options

    • Long Call Options Token Holder = Entity holding a Buy position for Call options

    • Long Put Options Token Holder = Entity holding a Buy position for Put options

    • Short Call Options Token Holder = Entity holding a Sell position for Call options

    • Short Put Options Token Holder = Entity holding a Sell position for Put options

  • Execution Price: Actual price of options when traders trade options. The execution Price is determined by the sum of the Model Price and Risk Premium

  • Mark Price: The theoretical price of options calculated using the Black76 formula based on real-time future price and implied volatility from major CEXs

  • Risk Premium:

    • Amount added to the Model Price when a trader requests a trade. It is calculated based on OLP's current Asset Utility Ratio and the level of Greeks, taking into account changes in the option's Greeks

    • Risk Premium is included in the Execution Price and is charged to the trader. 50% of the Risk Premium is paid to OLP as compensation for assuming position risk

  • Payoff: Amount of USDC/UA that Long Position Token holders can receive when options reach expiry

  • Settlement:

    • Process of calculating the final payoff of options after expiry and paying Long Position Token holders

    • Remaining collateral is redeemed to Short Position Token holders

Greeks

  • Delta: Measures the sensitivity of the option's price to changes in the price of the underlying asset.

  • Vega: Measures the sensitivity of the option's price to changes in implied volatility

  • Gamma: Measures the rate of change of an option's delta in response to changes in the price of the underlying asset

  • Theta: Measures the sensitivity of an option's price to the passage of time, representing time decay

  • Rho: Measures the sensitivity of an option's price to changes in interest rates

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