Perpetual Options

The perpetual option is the options equivalent of the perpetual future. In addition to providing indefinite leveraged delta exposure, it also provides indefinite gamma, vega and theta exposure.

Perpetual options are no-expiration options that are subject to Funding. They are ideal for traders that want continuous delta, gamma and vega exposure, without selecting an expiration.

They were invented in 2021 by Paradigm researcher Dave White, under the name everlasting options. In 2023, Everstrike became the first DEX to support CLOB-based (orderbook-based) perpetual options.

Specification

Perpetual options on Everstrike are priced, margined and settled in evUSD.

They are cash-settled (no physical delivery of the underlying asset takes place).

The options feature a dynamic strike price (pinned to the 100-hour EMA of the underlier, plus or minus a fixed multiplier that varies by contract). This ensures that all contracts remain relevant in perpetuity, and enables you to trade the same contract in 20 years from now that you are trading today.

Settlement	Cash
Expiration	Perpetual
Pricing Currency	evUSD
Margin Currency	evUSD
Settlement Currency	evUSD
Funding	Hourly
Funding Interval	1h
Max. Funding Rate	10%
Funding Period	10h
Strike Price	EMA₁₀₀ (Underlier) * Multiplier
Strike Price Update Interval	5 seconds

Notes:

• EMA₁₀₀ is the 100-hour Exponential Moving Average.

• Underlier is the Everstrike Index Price (spot price) of the contract's underlying asset.

• Multiplier is any of [0.90,0.95,0.97,0.99,1,1.01,1.03,1.05,1.10]. Each options contract has a unique Multiplier.

• evUSD refers to Everstrike's internal stablecoin, Everstrike USD.

• Strike Price Update Interval is the interval at which the Strike Price of the contract is updated.

• Max Funding Rate is the maximum Funding Rate possible for the contract. The Funding Rate cannot exceed this number.

• Funding Interval is the interval between each Funding exchange. The exchange takes place during the first five seconds of every hour (during which trading is disabled).

Equivalence with Perpetual Futures

A perpetual call option with strike price zero is functionally equivalent to a perpetual futures contract (identical payoff function). To see why, check out the following posts from our blog:

Perpetual Options

Perpetual Options vs. Perpetual Futures

Funding for perpetual futures works in the exact same way as funding for perpetual options.

Strike Prices

Perpetual options on Everstrike have dynamic strike prices. This ensures that each options contract stays relevant in perpetuity, removing the requirement for delisting and introduction of new contracts. The default strike price anchor is the 100-hour Exponential Moving Average (EMA₁₀₀) of the contract's underlier. Contract strike prices congregate around this number (subject to a unique percentage offset for each contract).

While this adds an additional layer of complexity to the perpetual options product on Everstrike, it comes with numerous benefits:

• You can trade the same contract in 20 years from now that you are trading today.

• There are no de-listings of contracts. You will never be forced to close out a position due to a contract being de-listed.

• The options chain is completely stable. The same 18 contracts, forever.

The downside of dynamic strike prices is that you will need to carefully evaluate the degree to which strike price movement affects your P/L. Drift helps you with this.

Example Strike Price Selection

• 1.1 * EMA₁₀₀ (Underlier)

• 1.05 * EMA₁₀₀ (Underlier)

• 1.03 * EMA₁₀₀ (Underlier)

• 1.01 * EMA₁₀₀ (Underlier)

• 1.00 * EMA₁₀₀ (Underlier)

• 0.99 * EMA₁₀₀ (Underlier)

• 0.97 * EMA₁₀₀ (Underlier)

• 0.95 * EMA₁₀₀ (Underlier)

• 0.90 * EMA₁₀₀ (Underlier)

Where EMA₁₀₀ is the 100-hour Exponential Moving Average, and Underlier is the option's underlying asset.

EMA₁₀₀

EMA₁₀₀ refers to the 100-hour Exponential Moving Average. It is calculated using the following formula:

EMA₁₀₀ = EMA_100[Pₜ,Pₜ₋₁,…Pₜ₋₉₉],

where

EMA_100 = 100-length Exponential Moving Average

Pₜ = Everstrike Index Price (right now)

Pₜ₋₁ = Everstrike Index Price (1 hour ago)

Pₜ₋₉₉ = Everstrike Index Price (99 hours ago)

Funding

Funding-based derivatives (perpetual futures, perpetual options, power perpetuals) are subject to Funding. Funding is an hourly exchange of money between longs and shorts.

• Positive Funding Rate: Longs pay shorts.

• Negative Funding Rate: Shorts pay longs.

Funding (Long) = -Funding Rate * Position Size

Funding (Short) = Funding Rate * Position Size

Funding takes place during the first five seconds of each hour. During this time, Everstrike takes a snapshot of all user positions, and debits/credits the margin balance of each user, according to the formula above.

Funding Rate

To calculate the Funding Rate, first calculate the Premium:

Premium = ((Mark Price - Index Price) / Index Price)

Next, calculate the Base Funding Rate:

Base Funding Rate = Max(dampener, Premium) + Min(dampener, Premium)

Where dampener is a pre-defined constant (0.03 for futures and 1.00 for options). Finally, calculate the Funding Rate:

Funding Rate = Base Funding Rate * (Funding Interval/Funding Period)

Funding Period

The Funding Period on Everstrike is 10 hours.

Funding Interval

The Funding Interval on Everstrike is 1 hour. This makes the gamma/vega profile of options on Everstrike similar to that of European-style 0DTE options. For more information, check out this article.

Drift

Drift is a property that is unique to floating strike options (perpetual options, Asian options, floating strike lookback options). It measures the impact of the option's strike price on its intrinsic value. A Drift of 2% indicates that the strike price movement of the option causes its intrinsic value to grow by 2% per hour. A Drift of -2% indicates the contrary.

TLDR; Expected hourly percentage change in intrinsic value (from strike price movement only).

Drift is often correlated with the Funding Rate (a negative Drift will often result in a negative Funding Rate, and vice versa). It is displayed within the Everstrike Frontend UI, along with the Funding Rate. Unlike the Funding Rate, it is an informational property only (no exchanges or transactions involving Drift ever take place).

Read more about Drift here.

Settlement

Perpetual options are cash-settled. Settlement on Everstrike takes place immediately after closing a position. Once the trader closes a position, the P/L from the position is credited to the trader's cash balance. This happens automatically, within one second of closing the position.

Expiration

Perpetual options do not expire.

Additional Notes

• Trading is disabled during the first ten seconds of each hour.

• The hourly Funding Rate is capped at 10%.

Example 1

A trader buys a perpetual BTC call option for a price of 100 USD. The strike price of the option is pinned to EMA₁₀₀(BTC). At the time of purchase, EMA₁₀₀(BTC) is 22,000, and the price of BTC is 22,100. Now he has the right to buy 1 BTC, at any time in the future, at a price that equals the EMA₁₀₀(BTC).

Twelve hours later, EMA₁₀₀(BTC) has risen to 22,100, and the price of BTC has risen to 22,500. The trader has paid $100 in funding. If the trader decides to sell his option now, he will profit the difference between the price of BTC and EMA₁₀₀(BTC), minus his initial purchase price, minus any funding he has paid thus far ($22,500 - $22,100 - $100 - $100 = $200). This amount will automatically be credited to his balance, should he decide to sell it.

Example 2

A trader buys a perpetual BTC put option for a price of 10 USD. The strike price of the option is pinned to EMA₁₀₀(BTC). At the time of purchase, EMA₁₀₀(BTC) is 22,000, and the price of BTC is 22,100. Now he has the right to sell 1 BTC, at any time in the future, at a price that equals EMA₁₀₀(BTC).

Twelve hours later, EMA₁₀₀(BTC) has risen to 22,100, and the price of BTC has dropped to 21,500. The trader has paid $300 in funding. If the trader decides to sell his option now, he will profit the difference between EMA₁₀₀(BTC) and the price of BTC, minus his initial purchase price, minus any funding he has paid thus far ($22,100 - $21,500 - $10 - $300 = $290). This amount will automatically be credited to his balance, should he decide to sell it.