Popular science: How to buy call options on Opium to hedge Gas prices
Editor's Note: This article comes fromEthereum enthusiasts (ID: ethfans)Editor's Note: This article comes from
Ethereum enthusiasts (ID: ethfans)
Ethereum enthusiasts (ID: ethfans)
, Author: Anastasia Korchagina, translation: Min Min, reprinted by Odaily with authorization.
Common use cases for hedging risk by trading financial instruments
The following is a detailed guide on how to hedge the risk of rising Gas prices through options trading.
You can think of option trading as a kind of insurance to protect yourself or your project from fluctuations in Gas prices.
Buying call options is a way to hedge against high gas fees. Suppose there is a contract now, and the execution price of Gas fee is 35 gwei. That is to say, in the next week, the contract expects the average Gas price to be 35 gwei. Through this contract, traders can buy 10,000,000 at a price of 0.35 WETH (the unit price is 35 gwei). If you think the average Gas price this week will be above 35 gwei, call options are just what you need. Let's forget about the contract price and fast forward to this weekend.
-Figure 1: The average gas price exceeds 35 -
Scenario 1: Gas price increases! (see picture 1 )
As you might expect, Gas prices skyrocketed to an average of 45 gwei. Since you bought a call option on the Gas price at a unit price of 35 gwei before, and now the Gas price has risen to 45 gwei, you have obtained a net profit of 0.1 WETH.
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-Picture 2 Gas price average is lower than 35 -
Scenario 2: Gas price decreases. (See Figure 2)
You made a mistake in your prediction. The Gas price this week is very low, with an average of only 15 gwei. Since the actual gas price is lower than the price of your call option, you will not "exercise" the option. This is like a medical insurance. When you are in good health, you do not need to use medical services, so you will not exercise options. In this case, all the option trader loses is the cost of the contract.
"What is the selling price of such an option contract? How much is the price worthwhile?"
There is no right answer here because:
The price of options contracts is not determined by the Opium exchange, but by the market; through the order book, you can find out what other users are willing to pay for such a contract.
Of course, you can create buy or sell orders at your preferred price if you think the price is unfair.
You simply set the price when submitting the order. Your order is then added to the order book, waiting for a counterparty willing to sell it to you at that price.
On the order book, you can see other buy orders and their prices. Currently, the highest buy order price is 0.011 WETH.
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-Translator's Note: The above figure simulates the trading process and results of call options. Suppose Alice sells a call option to Bob, then Bob is actually bullish on the Gas price and thinks that the Gas price will rise. Alice is just the opposite. Bob pays 0.1 WETH immediately, and Alice needs to lock 0.245 WETH. After the option expires, if the Gas price increases, Bob can get income based on the amount of Gas and the difference between the option price and the market price (and pay the contract fee); and Alice gets back Bob's income and the contract fee remaining funds. If the Gas price falls, Bob will not exercise his purchase right at all, so he only loses the cost of buying the option; Alice earns a net option premium and can get back the funds locked in the contract. -
transaction protection
To avoid tail risk, all derivatives we offer, such as Gas Price Options, have a fixed initial margin requirement. That is to say, the initial margin locked by the buyer and seller at the time of placing the order limits your profit and loss.
