Zeta Markets — Revolutionizing Options Trading on DeFi
What is Zeta Markets?
Zeta is revolutionizing options trading on DeFi, enabling anyone to effectively hedge risk against crypto market movement and events.
Value proposition:
- Hybrid orderbook and options AMM model (automated market maker) that allows for efficient pricing and deep liquidity
- Greater capital efficiency via under-collateralization
- Lightning fast transactions and low fees (thanks to Solana)
- A strong focus on the user experience with easy-to-trade derivative products and exciting underlyings that appeal to the you, the pioneers of DeFi
What is an option?
Let’s start with a dry definition:
An option is a contract that gives you the right, but not the obligation, to buy or sell an underlying asset on a specified date and at a specified price.
This date is called the expiration date or expiry date,
and the price is the strike or strike price.
The right to buy or sell an asset belongs to the buyer or option holder. And the obligation to act as a counterparty in this transaction lies with the seller.
- “It turns out that the option buyer may or may not exercise the option. So he has a win-win situation, because he can only exercise options when it benefits him”?
Not exactly: every option has a price that the buyer pays to the seller. This is called the premium and is paid regardless of whether the buyer exercises the option or not.
There are two main types of options — call option — to buy and put option — to sell.
Let’s take a look at a call option trade:
It’s August 25, ETH is now worth $3,000, and I have every reason to believe that Ethereum will rise above $5,000 in a month.
And my friend also believes in the growth of Ethereum, but holds the opinion that its price will not exceed $3,400 all fall.
My friend and I discussed our forecasts on Ether and decided to make a bet in the form of call option for 1 ETH with the following parameters:
Expiration date: September 25, 2021
Strike price: $3 500
The premium: $200
I gave my friend the premium of $200 at once and waited for September 25.
- If the price of ether is less than $3,500 on September 25, it would not be profitable for me to exercise my option at $3,500 from my friend. This option is called an out-of-the-money option (OTM).
I will receive a loss equal to the premium of $200, while my friend will receive that amount as a profit. - If the price of ether is $3,500 on September 25, that option becomes a no-loss or At-The-Money option (ATM). But even with the price of Ether at $3,600, if I execute the option I will be at a loss, since the $100 I earn will not cover the premium.
- Only at the price of ether above $3,700 would I be in the black. If everything goes according to my scenario and ETH costs $5,000, I would be able to exercise the option by buying 1 ether at $3,500 from my friend and selling it immediately at market price.
My friend, on the other hand, would have to buy the ether off the market for $5,000, sell it to me for $3,500, and find himself at a loss.
Below is an illustration of the dependence of my returns on the price of ether:
Usually, the options are settled in cash, that is, the parties do not sell anything to each other, but only pay the difference in the price of the asset and the strike price.
Note that since, in theory, the asset can grow indefinitely, the losses of the seller of the call option are unlimited. It is quite different when the seller has the underlying asset in hand and does not need to buy it back from the market at a high price in case of emergency.
Selling a call option when the underlying asset is held by the seller is called a covered call or covered call.
It’s the same with put options. Only they are bought based on a decrease in the price of the underlying asset. Here the buyer also risks only the size of the premium, but the seller has more serious risks.
The seller of the options needs to calculate the strike price, expiration dates, volumes of transactions and constantly watch the events on the market.
Let’s look at how to start trading options at Zeta Markets
Getting Set Up:
- Select and connect your wallet so that you can begin using Zeta.
Using wallet’s: Phantom, Solflare, Sollet, Slope, Ledger, Solong, MathWallet
2. After connecting a wallet, you will get to registration.
3. Follow the instructions and you will soon begin trading.
Trading:
- Now lets select an option to trade!
Here are links to articles on how to properly trade options:
2. Select the expiry — this is the date and time at which the option will be exercised and settled depending on the price of the underlying at the time of expiry.
3. Select the strike price — this is the price that will be compared to the SOL price at expiry to determine if your option expired in the money or not.
4. Once you have selected your option you can then enter your trade details on the trading panel. Enter the price you are willing to buy/sell the contract at and the qty of options you would like to buy/sell.
Some key definitions to take note of here are:
Initial Margin: This is what you must pay to put up your trade (note this is less than the trade value as we have undercollateralized trading).
Trade Value: This is the value of the contracts you are purchasing. Trade value = Price Per Option x Quantity of Options.
Maintenance Margin: This is how much capital you must keep in your wallet to ensure you do not get liquidated.
5. Once you have placed your trade you can then monitor it via the Account panel which you can expand by clicking “Account”. Here you can view your balances and positions.
6. You can now see your account panel where you can keep track of all your positions, orders and your key account metrics.
A few key terms to understand:
Available Balance: This is the capital available in your account for trading.
Total Trade Equity: Is the total value of your account and trading portfolio. It Is calculated as follows: Account Balance + Unrealized PnL.
Total Maintenance Margin: Is the capital in your wallet set aside to keep your positions open.
Net Unrealised PNL: Is the total profit and loss from the positions in your portfolio.
7. You can expand a position by clicking the grey arrow to reveal information and actions for your position. Simply click “Close Position” to close a position before it expires. In a similar fashion you can cancel open orders before they execute.
Why Zeta?
Ecosystem
We’ve teamed up with leading funds, trading firms and projects to build out the Zetaverse.
Partners:
Liquidity Providers:
Projects:
Conclusion:
Today we got acquainted with the Zeta Markets platform and we have analyzed the mechanics of the product. Now nobody can confuse us with the terms “call” and “put option”, and we can explain the difference between them to anyone.
Now we know one more way to make money. As always, it is worth observing risk and money management, as well as taking into account the possibility of execution of sold options.
Website: https://zeta.markets/
Twitter: https://twitter.com/ZetaMarkets
Medium: https://medium.com/@zetamarkets
Gitbook: https://zetamarkets.gitbook.io/zeta/
Github: https://github.com/zetamarkets
