OLP (Options Liquidity Pools)

OLP (Options Liquidity Pools)

Presenting: Option Liquidity Pools, a method for users to exit their option positions mid-epoch while retaining the benefits of their Europeans.🚀

Dopex once again delivers innovation to its users, this time in the form of a new system called OLP or Option Liquidity Pools. The concept is relatively simple and clear, although we expect it will significantly improve user experience. This short article covers the basics and everything else needed to understand OLP. Let’s start with the basics.

OLP is a new system that builds on our well-known SSOV product. As the name suggests, they are simply pools that allow the purchase of SSOV option tokens with an implied volatility discount to provide option buyers with exit liquidity at any time. In simpler terms, buyers of SSOV options can exit their position at any time for a discounted price in option liquidity pools.

Let’s go through the steps from each user’s perspective:

Liquidity provider option:💰

1. Choose the underlying asset and strike price from the available SSOV vaults that you want to provide liquidity for (e.g. $ETH at a strike price of $1300).
2. Select the implied volatility rebate (1-100%) that will be applied to the option’s Black-Scholes pricing formula on each purchase (e.g. if $ETH IV is 100 and the user enters a 10% rebate, the option pricing formula is calculated taking into account a 90 IV)
3. Deposit the amount of liquidity you wish to spend on the selected discounted option (Deposit liquidity in USDC or underlying for calls and puts)
4. Once the order is completed, the collateral is automatically added to the OLP page in order book style. The order can be closed at any time by pressing the “Kill” position button.

Option buyer:🛒

1. Each purchase of SSOV options comes with a receipt token as proof of purchase. OLP uses this token as a transfer medium to exchange against the liquidity provider’s order.
2. The OLP page displays the available liquidity at different strike prices and discount levels sorted in ascending order.
3. Options token holders can sell their position to OLP at any time during the epoch as long as liquidity is available.
4. To sell your token option position, select the discount rate at which liquidity is available for the amount to be sold and press “Fill”. When filling, your option position is automatically sold at the current market price – the selected IV discount rate. (e.g. if the price of the asset was ITM, you could take profits through OLP sales)

As you can see, OLP is a new tool that benefits both sides. Below are some of the annoyances experienced by SSOV users and further below how OLPs solve them.

SSOV harassment🪓

• Illiquid option positions (take profits or exit for X reason)
• Non-recyclable option liquidity
• Mid-era items cannot be purchased at a discount

OLP solutions🏆

• Exit option positions at any time (take profits or exit for X reason)
• Recyclable options liquidity (options contracts can be reused multiple times, improving liquidity efficiency)
• Ability to buy mid-epoch options at a discount, creating an option price floor to theoretically decide against

As an option buyer, you are betting on the direction of an asset, but more often than not, that bet is made over an approximate range that you hope will end up near the stadium. Example: You think $ETH will pump this month but don’t know the exact date and want to risk it by buying a monthly $ETH option. With European options, you would have to wait until expiry to take profits from the options settlement, making the final hours/days of the contract critical. But with OLP, your bet can be correct at any time throughout the epoch, and you could cash in profits without sacrificing the time value of an option (theta).

Use cases include:

• Take the profits of the call option
• Take profits from put options
• Buy discounted option positions
• Buying discounted options creates arbitrage opportunities through external protocols/tools (unlocks a floor by integrating MMs)

OLPs are an ideal integration that makes Dopex options more compelling than ever for their buyers. In order to improve user experience, we intend to hire MMs to ensure a solid liquidity foundation that allows users to exit their position at any time. When opportunities arise, Dopex adapts. Innovation is the foundation of everything we do at Dopex and we hope that our community will guide us as we move forward. With that in mind, we hope this release improves your overall user experience and we honestly can’t wait to show you everything we have in store over the next few months! See you soon!🖐

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📃 About Dopex

Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize profits for option buyers – all in a passive manner.

Dopex uses option pools to allow anyone to earn a return passively. Add value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expirations. This is thanks to our own innovative and state-of-the-art options pricing model that replicates volatility smiles.

📱 Stay connected

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Thank you for your support!

Dopex reserves the right, in its sole discretion, to amend, modify or withdraw this posting at any time and for any reason without notice.

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