Linear USDC Options on Deribit are European options, priced and cash settled in USDC.
European style options are exercised only at expiry and cannot be exercised before. On Deribit, this will happen automatically at expiry. (Though the options are only exercised at expiry, traders are free to close their positions before expiry in the open market.)
Cash settlement means that at expiry, the writer of the options contract will pay the profit due to the holder in cash, rather than exchange the asset for the strike price.
The options are priced in USDC. Additionally, the implied volatility of the option’s price is also displayed on the platform.
A call option is the right to buy the underlying asset at a specific price (the strike price), and a put option is the right to sell the underlying asset at a specific price (the strike price). Though remember, with cash settlement it is only the intrinsic value of the option that is paid when the option expires.
Altcoin options also typically have a contract multiplier, meaning each contract represents a certain amount of the underlying currency. More info on this below.
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Buying a call option |
A trader buys a SOL call option with a strike price of 250 USD for 10 USDC. As Solana has a multiplier of 10 applied the buyer pays 10 * 10 USDC = 100 USDC. With the multiplier this call option represents the right to buy 10 SOL for 250 USDC each. The option is cash settled. At the expiry, the SOL Index is at 275 USDC and the delivery price is 275 USDC. In this case, the option is settled for 25 USDC per 1 SOL. This is calculated by subtracting the strike price minus the delivery price. 275 - 250 = 25. As Solana has a multiplier of 10 the total amount USDC which is settled is 25 * 10 = 250 USDC At the expiry, the trader’s account is credited with 250 USDC (25 * 10), and the seller’s account is debited with 250 USDC. The initial cost was 100 USDC, therefore the trader’s profit is 150 USDC. Any call option with an exercise price (strike price) above 275 USDC 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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Buying a put option |
A trader buys a SOL put option with a strike price of 250 USDC for 10 USDC. This put option represents the right to sell 1 SOL for 250 USDC. At the expiry, the SOL Index is at 225 USDC and the delivery price is 225 USDC. In this case, the option is settled for 225 USDC per 1 SOL. This is calculated by subtracting the delivery price minus the strike price. 250 - 225 = 25. As Solana has a multiplier of 10 the total amount USDC which is settled is 25 * 10 = 250 USDC At the expiry, the trader’s account is credited with 250 USDC (25 * 10), and the seller’s account is debited with 250 USDC. The initial purchase price was 100 USDC; therefore, the trader’s profit is 150 USDC. Any put option with an exercise price (strike price) below 225 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 SOL call option with a strike price of 250 USDC for 10 USDC. As Solana has a multiplier of 10 applied the seller receives 10 * 10 USDC = 100 USDC. At the expiry, the SOL Index is at 225 USDC and the delivery price is 225 USDC. The option expires worthless as the delivery price is below the strike price of the call option. The buyer lost 100 USDC and the seller gained 100 USDC. |
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Selling a put option |
A trader sells a put option with a strike price of 250 USDC for 10 USDC At the expiry, the SOL Index is at 275 USDC and the delivery price is 275 USDC. The option expires worthless as the delivery price is above the strike price of the put option. The buyer lost 100 USDC and the seller gained 100 USDC. |
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) |
Option trades are limited by a combination of 2 parameters
The highest potential value of the contract given a 6% price move up with a volatility range up scenario and the lowest potential value of the contract given a 6% price move down with a volatility range down scenario.
Orders beyond the bandwidth will not be accepted. 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.
Currently, only limit orders (not market orders) are accepted by the matching engine. 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 post-only buy order at 1 USDC, but there is an offer at 0.9999 USDC, the price of the order will be automatically adjusted to 0.9998 USDC, so that it enters the order book as a limit order.
Volatility Orders
For Linear USDC Options, volatility orders are supported as well. The trader can submit them by checking "Advanced Order" on the order form.
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.
The forward price will be used as the underlying price for calculating IV orders.
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 a Solana option is traded at a price of 40 USDC per Solana while Solana trades at $250 (as Solana has a multiplier of 10 enabled the total cost of 1 option would be $400), but its theoretical price is 5 USDC. The mistrade correction value is $25 (10% of $250), the correction can only be made to $30 per option ($5 + $25). The correction will be $10 per Solana and as Solana has a multiplier of 10 enabled the total correction will be $100 ($10 x 10).
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.