The Decentralized Finance Compound DeFi protocol saw the price of its governance token, COMP, skyrocket when it was launched last week.
Now, the market for decentralized options Opyn has launched put options on COMP which will provide a sort of safety net for holders who will be able to mitigate some of the risks should COMP's fortunes worsen in the coming days. Opyn offers a put option on COMP for the exercise price of $ 150, which will expire on July 3.
A put option is a derivative contract which gives the buyer the right but not the obligation to sell the underlying asset at a pre-established price by a specific date. Likewise, call options represent a right to purchase. With options, traders can place bearish or bullish bets at various price levels called strikes that expire in several months.
How it works
A put option with a strike of $ 150 can be purchased by paying a share in US dollars, currently $ 3,76. In return, the buyer will receive oTokens, which represent the right to sell COMP within the $ 150 deadline.
In the meantime, the option seller offering the insurance will deposit 150 USDC, a dollar-backed stablecoin, as a guarantee that there is no liquidation risk. The put option on COMP is an American-style option, which means that the buyer can exercise his right to sell COMP for $ 150 at any time before July 3rd.
European options can only be exercised on expiry. During the exercise of the put option, the buyer will return oTokens to Opyn together with COMP (because oToken is the "right to sell COMP for $ 150") and will receive 150 USDC in return.
In this case, the maximum loss for the buyer is the premium paid, which is the maximum amount the seller can make. Even if the price of COMP goes to single digits or even zero, the holder of the put option would still be able to sell COMP for $ 150.
Speculation
"Opyn's put option can be used by traders who don't own COMP but want to speculate on the DeFi token," Anton Cheng, Opyn developer. A trader with a bearish view on COMP can simply purchase put options at the available strike price of $ 150.
If the COMP decreases, the oTokens will appreciate in value and the operators will be able to liquidate them on Uniswap. As of press time, COMP is trading at $ 250, according to Opyn.co. The governance token became active for trading on June 18 and traded around $ 80 on the first day.
Over the next three days, its price rose 500% to $ 380, triggering some frenzy in the DeFi space. Such strong events often follow sudden price falls. Therefore, savvy investors can purchase the recently launched put option on COMP to limit downside risks.
In short, there was a nice profit for those who managed to invest correctly. And you invest with Bitcoin Revolution? Have you ever tested this popular automatic trading platform worldwide? Let us know in the comments below!
