Deribit offers European style cash-settled options.
European style options are exercised only at expiry and cannot be exercised before. On Deribit, this will happen automatically at expiry. Option positions can still be closed before expiry though by trading them in the open market.
Cash settlement means that at expiry, the writer of the options contract will pay only the intrinsic value of the option to the holder's cash balance, rather than exchange the underlying asset for the strike price. When purchasing an option, the premium is immediately subtracted from buyers cash balance.
The inverse options are priced in the base currency. However, the equivalent price can also be seen in USD. The price in USD is calculated by using the latest index price. Additionally, the implied volatility of the option’s price is also displayed on the platform. The implied volatility displayed uses the forward, rather than the index, as the underlying price in the calculation. Option orders can also be set in both USD and implied volatility. However, when either USD or implied volatility is used to set an inverse option price, the price of the order will then be converted to the equivalent amount of the base currency, and then rounded to the nearest valid price.
The contract multiplier for the inverse options is 1, so a BTC call option is the right to buy 1 BTC at a specific price (the strike price), and a put option is the right to sell 1 BTC at a specific price (the strike price).
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Buying a call option |
A trader buys a call option with a strike price of 100,000 USD for 0.05 BTC. This call option represents the right to buy 1 BTC for 100,000 USD, though remember, in practice the options on Deribit are cash settled. At the expiry, the BTC Index is at 125,000 USD, and the delivery price is 125,000 USD. In this case, the option is settled for 25,000 USD per 1 BTC. This is calculated by subtracting the strike price minus the delivery price. 125,000 - 100,000 = 25,000 At the expiry, the trader’s account is credited with 0.2 BTC (25,000/125,000), and the seller’s account is debited with 0.2 BTC. The initial purchase price was 0.05 BTC; therefore, the trader’s profit is 0.15 BTC. Any call option with an exercise price (strike price) above 125,000 USD will expire worthless. Exercising of in the money options happens automatically at the expiry. The trader cannot exercise the option himself, or exercise it before the expiration. However, option positions can still be closed before expiry by trading them in the open market. |
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Buying a put option |
A trader buys a put option with a strike price of 5,000 USD for 0.05 ETH. This put option represents the right to sell 1 ETH for 5,000 USD. At the expiry, the ETH Index is at 2,500 USD, and the delivery price is 2,500 USD. In this case, the option is settled for 2,500 USD per 1 ETH. This is calculated by subtracting the delivery price minus the strike price. 5,000 - 2,500 = 2,500 At the expiry, the trader’s account is credited with 1 ETH (2,500/2,500), and the seller’s account is debited with 1 ETH. The initial purchase price was 0.05 ETH; therefore, the trader’s profit is 0.95 ETH. Any put option with an exercise price (strike price) below 2,500 USD will expire worthless. Exercising of in the money options happens automatically at the expiry. The trader cannot exercise the option himself, or exercise it before the expiration. However, option positions can still be closed before expiry though by trading them in the open market. |
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Selling a call option |
A trader sells a call option with a strike price of 100,000 USD for 0.05 BTC. At the expiry, the BTC Index is at 95,000 USD, and the delivery price is 95,000 USD. The option expires worthless as the delivery price is below the strike price of the call option. The buyer lost 0.05 BTC, and the seller gained 0.05 BTC. |
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Selling a put option |
A trader sells a put option with a strike price of 5,000 USD for 0.05 ETH. At the expiry, the ETH Index is at 6,000 USD, and the delivery price is 6,000 USD. The option expires worthless as the delivery price is above the strike price of the put option. The buyer lost 0.05 ETH, and the seller gained 0.05 ETH. |
Call option:
C = N(d1) - K/F * N(d2)
Put option:
P = K/F * N(-d2) - N(-d1)
d1 and d2 are calculated as follows:
d1 = [ln(F/K) + (σ^2 / 2) * T] / (σ * sqrt(T))
d2 = d1 - σ * sqrt(T)
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(C/P) Option Price/Market Price |
The mark price of the call/put option (or bid/ask when calculating bid/ask IV) |
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(K) Exercise Price |
The strike price of the option |
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(F) Forward Price |
Forward price for the option expiry |
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(T) Days until Expiration/Maturity |
The number of days until the expiry of the option, as a decimal, where the option is delivered/expires at 0800 UTC of that calendar day. The amount of time in years until the expiry of the option. Example: If an option expires in 1 day and 17 hours, the time to expiry is (1+(17/24))/365 = 0.00468 years The full amount of time is included in the calculations. |
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(σ) Volatility |
The IV of the option. The standard deviation the underlying asset's returns. |
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(N) Normal Distribution |
Standard normal distribution |
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Dividend Yield |
Zero (0) |
Currently, only limit orders (not market orders) are accepted by the matching engine for options. Market orders are not available for options. Additionally, an order can be a “post-only” order; however, this functionality is not available for advanced order types (explained below).
A post-only order will always enter the order book without being instantly matched. If the order were to be matched, our trading engine would adjust the order so that it enters the order book at the next best possible price.
Example: If a trader places a buy order at 0.0050 BTC, but there is an offer for 0.0045 BTC, the price of the order will be automatically adjusted to 0.0044 BTC, so that it enters the order book as a limit order.
For options trading, the platform supports two additional advanced order types. The order book’s prices are in BTC and the options are priced in BTC. However, it is possible to submit volatility orders and constant USD value orders.
By filling the options order form, the trader can choose to determine the price in 3 ways: in BTC, USD, and Implied Volatility.
When an order is priced in USD or implied volatility, the Deribit engine will continuously update the order to keep the USD value and the Implied Volatility at the fixed value as entered in the order form. IV and USD orders are updated once per 6 seconds.
USD Orders
Fixed USD orders are useful when a trader has decided that he wants to pay X dollars for a certain option. Due to the changing exchange rate, this value is not constant in BTC, however, the order book works only with BTC. To maintain the constant USD value, the order will be continuously monitored and edited by the pricing engine.
For USD orders, the relevant Deribit index is used to determine the BTC price of the option.
Volatility Orders
Volatility orders are orders, with pre-set constant implied volatility. This type of order makes it possible to market-make options series without additional market maker applications.
Automatic hedging with futures is not yet supported, however, is on the roadmap. Black's option pricing model is used to determine prices. Please note that the prices of USD and Volatility orders are updated once per second. For Volatility orders it is the forward price, rather than the index, that is used as an input to the pricing model for calculating the option price.
Option trades are limited by combination of 2 parameters:
The highest and lowest potential values of the contract given a ±3% price move and a minimum trading bandwidth constant (currently set to 0.015).
Orders beyond the bandwidth will be adjusted to the maximum possible buy price or minimum possible sell price. This approach ensures that the trading limits reflect both the potential risk associated with the option contract and the need for market stability.
If market circumstances require so, bandwidth parameters could be adjusted at the sole discretion of Deribit.
Due to various reasons, there can be a situation when options are traded at prices caused by an abnormal non-orderly market, with a high chance that one side of the trade has been done unwillingly. In such cases, Deribit might adjust the prices or reverse trades.
Price adjustments or reversal of options trades will be done only if the traded price of the options contract was further than mistrade correction value away from the theoretical price of the underlying options contract.
Tip
Example: If an option is traded at a price of 0.12 BTC, but its theoretical price is 0.05BTC, the trader can request a price adjustment to 0.10BTC.
If a trader realizes that a trade has been executed at a price regarded as mispriced, he should write an email to the exchange (support@deribit.com) asking for a price adjustment as soon as possible.
The theoretical price of the option is the mark price, though it is difficult for the exchange to have the mark price exactly matching the theoretical price at all times. Therefore, in case of a disagreement about the theoretical price, this price will be determined by consulting with primary market makers on the platform. If there is any disagreement, Deribit will follow their recommendations as to what was the theoretical value of the option at the moment of the trade.
A request for a price adjustment has to be made within 2 hours after the execution of the trade. If for whatever reason the counterparty has already made a withdrawal of funds, and Deribit is not capable to retrieve enough funds from the counterparty, a price adjustment will only be made for the amount that was retrievable from the counterparty account. The insurance fund is not meant and will not be used for funding mistrades.