Drift

Since perpetual options on Everstrike have dynamic strike prices, their strike prices are never static. They follow the 100-hour EMA of the underlier, and will rise, when the price of the underlier rises, and drop, when the price of the underlier drops.

Drift measures the gain or loss that can be attributed to this strike price movement.

• If the Drift of a perpetual options contract is 5%, the contract is expected to gain 5% in intrinsic value per hour from strike price movement.

• Conversely, if the Drift of the contract is -5%, it is expected to lose 5% in intrinsic value per hour from strike price movement.

Note the following:

• The intrinsic value of an options contract is not always equal to its market value. Drift will measure the expected change to its intrinsic value. However, its market value could potentially develop differently. On Everstrike, the Index Price is an indicator of a contract's intrinsic value, and the Mark Price an indicator of its market value.

• Drift is not the only factor that impacts the intrinsic value of a perpetual options contract. Price movement of the contract's underlier impacts the intrinsic value of the contract to a much greater degree than Drift. However, it is impossible to predict in advance.

In short, Drift is useful for evaluating the future expected intrinsic value of a perpetual options contract (and the gain or loss that you might expect), but it should never stand alone. You should always incorporate Funding into your projections as well, and your own view on the price movement of the contract's underlier.

Drift and Funding

Drift is correlated with Funding. If the Funding Rate of a contract is negative (e.g. -3%), Drift will often be negative as well. This is because the negative Drift of the contract incentivizes market participants to short it. This creates a market equilibrium, where holders of the contract may expect to lose 3% of their contract value per hour from Drift, but gain an equivalent amount of value from hourly funding exchanges.

If the Drift of a contract is not equal to its Funding Rate, it is typically because of the contract carrying a large premium. This results in a significant gap between the market value of the contract and its intrinsic value (which in turn leads to a very high Funding Rate). This type of scenario is most common for at-the-money and out-of-the-money options contracts.

It is possibly to arbitrage Drift and Funding. However, you should be aware of the above (Drift and Funding should not always equal each other - especially not for at-the-money and out-of-the-money options contracts). And you should also acknowledge the fact that the Funding Rate and the Drift are point-in-time estimates - they change constantly, and the values that they have right now may not be the same in 30 minutes from now.