on the crypto
The Malta-based cryptocurrency exchange, OKEx, implemented option contracts on the Ethereum (ETH) token ether on June 4, ending the virtual monopoly in the Panama-based Deribit space.
Technical Information
“OKEx ETH option contracts will be settled in ETH. The face value of each ETH / USD option contract is 1 ETH, ”said Jay Hao, CEO of OKEx. The options are derivative contracts, which give the buyer the right, but not the obligation to buy or sell the underlying asset at a predetermined price by a specific date.
While a call option represents a right to buy, a put option gives the holder the right to sell. The market prices of the exchange options are determined by the Black-Scholes model in real time and the final settlement price will be generated through a weighted average, in a time interval before expiry, of the underlying price.
OKEx immediately set up $ 240.000 insurance
To avoid what OKEx calls a "social clawback," the exchange has already set up an insurance fund for ETH / USD options of 1.000 ETH, worth approximately $ 240.000 as of June 5.
Clawbacks occur when the exchange's insurance fund does not have sufficient reserves to cover the total call losses of the Investors. The exchanges "socialize" the losses, recovering part of the gains from the traders who have had the most revenue thanks to a large unexpected bullish or bearish move, which leads to the forced execution of long / short position.
"The options would offer operators greater versatility and a great way to cover their risks," said Hao. Ether's fortunes are closely related to the use of Ethereum in decentralized applications (dApps). Hence, it could be argued that ether options are hedging tools for dApps.
The road is still long for OKEx
Investors' interest in the crypto derivatives market exploded this year, with an open interest in futures on ether listed on the main markets up 100%. Meanwhile, open interest for the ether options listed on Deribit has skyrocketed by more than 900%, according to data provided by the research firm on crypto derivatives Skew.
As of June 4, OKEx was the largest exchange of open interest futures on ether, accounting for 26% ($ 179 million) of the global count of $ 672 million. Additionally, the exchange recently outperformed BitMEX to become the largest open interest bitcoin (BTC) futures exchange.
While OKEx dominates futures, options are dominated by the exchange Deribit. Over the same period, Deribit accounted for more than 75% of the total open interest of $ 1,3 billion in BTC options and contributed to almost all of the $ 144,35 million open interest in ether options.
At the same time, OKEx covered only 4% of the total open interest in BTC options. OKEx therefore has a long way to go before reaching Deribit's number one position in the options market. OKEx plans to launch options on EOS, the ninth cryptocurrency by volume of trade, on June 18.
