Just another week in crypto, folks. While my previous plight in hopes for a greener week than the last was not answered, I’ll take the consolation prize of Bitcoin going sideways any day of the week. This week we’re going to dive into a new concept in the Defi space with options contract platform Hegic Protocol.
Introduction
Hegic is an on-chain options protocol for the trustless creating, maintaining, and settling of hedge contracts in an open-source decentralized environment. Participants can buy WBTC or ETH calls and put options as an individual holder, or sell ETH calls and put options as a Hegic liquidity provider. On Hegic users can choose any strike price, guarantee locked liquidity to provide exercise at any moment during the contract period, never any KYC or other registration requirements, and auto-diversification liquidity options among all contracts for options writers. For those unfamiliar with how options contracts operate. An option is a contract that gives a buyer the right, but not the obligation, to buy (in a call option contract) or sell (in a put option contract) the underlying asset at a specific price on or before a certain date. Traders can use these on-chain options for market speculation or to hedge and grow their positions. Options trading is considered part of the Derivatives market because they derive their value from an underlying asset. On Hegic protocol, there is no need for a centralized clearing organization. Hedge contracts are created, maintained, and settled in a decentralized way. Exercising of hedge contracts is guaranteed by the liquidity allocated and locked into a timestamped Ethereum Virtual Machine executing the contract’s code.
With “Call Options”, users are issued a contract that allows them the right, but not the obligation to “Buy” a certain asset or set of assets within a specific timeframe. The predetermined price the call holder can buy these assets at is known as the “Strike Price”.The price to purchase one of these call options is called the “Premium”. For example; if a user puts in a call option for Ethereum at $1,000 USD with an end date of two weeks. If at the end of the two-week contract Ethereum is below $1,000 USD, the contract holder loses only the premium paid to open the contract. But if the price is above $1,000 USD, then the contract holder profits from the current price of Ethereum deducting the strike price and premium paid.
With “Put Options” users can purchase contracts that give an owner the right, but not the obligation to “Sell” a specified amount of an underlying asset, at a specified price within a certain time. With put options, the “Strike Price” is now the predetermined price at which a buyer can sell. With puts, if the underlying asset is above the strike price, the put buyer loses the premium paid. But if the asset is below the strike price, then the contract holder profits the strike price minus the current asset price and premium paid. In both scenarios, the premium paid into the options contract is the greatest loss a user can expect when executing these options on Hegic. With the premiums paid, these are received as income to the sellers of the option contract. As the price of the underlying asset changes, the option premium adjusts. If the underlying asset’s price increases, the premium of a call option increases….
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
