Guide: Buying Put Options with Pods | How to hedge
Buy put options and protect against price volatility
Pods is the easiest way to hedge crypto assets on Ethereum.
But first, what is a hedge?
“A hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related security.”
Investopedia, https://www.investopedia.com/terms/h/hedge.asp
In other words, a hedge is a protection against unwanted price movements. Using a hedge in one portfolio can reduce the overall risk and exposure to volatility.
At Pods, we believe that hedging should be possible for everyone. Not only traders and investment funds. Everyone should be able to hedge and protect their hard-earned funds.
We created a protocol and an app to allow people to hedge their crypto assets in the easiest way ever done.
This blog post will highlight the simple steps to complete a hedging operation at the Pods app, currently live on Kovan.
Hedging with put options
Nowadays, our protocol offers a hedging solution using put options.
A put option represents the right, but not the obligation, to sell an asset in the future at a specific price.
Buying a put option works as a “price insurance” since it guarantees to the buyer that he or she will be able to sell the asset at that price upon expiration.
So in the case below, we’ll explain how to buy options and, therefore, hedge assets within the Pods app.
Let’s jump into the app!
Buying put options
After you connected your wallet of choice and is on the Dashboard, find the “Buy” icon on the left menu:
Once getting in the Buy section, the Pods protocol’s available options will load. Each option series shows the following information:
- Underlying asset: the asset you want to buy protection for.
- Collateral asset: the asset you will receive if you exercise your option during the expiration window.
- The strike price (compared to the current spot price): the price you can exercise your option.
- Premium: the cost of the protection you’re buying.
- Expiration: as we only have European options, for now, you can only exercise the option during the expiration window.
- Type: Put or Call options (we currently have just put options in the app).
After choosing the option series that attends to your hedging necessities, click on the arrow to access the checkout flow and purchase the protection.
The next step is inputting the details of the hedge and approving the transaction.
To buy hedge (or price protection), you should input how much underlying asset you want to protect in Step 1.
For example, you’ll protect 5 ETH against a drop in price below $1900. That means that if ETH drops to $1400, you will be able to exercise your option and sell 5 ETH for $1900 each.
Step 2 will calculate and show how much the protection (premium) will cost that much underlying asset. The premium will be paid in the collateral asset.
Step 3 summarizes the operation and asks you to agree with the data provided.
Once you confirm the data and the operation, it’s time to “Allow” and confirm the option’s purchase.
The purchased options will be available for consultation at your Dashboard in the “Options bought” section.
And now you’re hedged until the expiration date. By the time of the exercise window, you’ll have the optionality to exercise the option if it is in-the-money.
That’s how easy it is! We’re looking forward to hearing your thoughts to make sure your hedging problems will be solved.
Here is a quick video for you to learn how to buy options in our application:
Join our Discord and let us know what you need! See you soon!
About Pods
Pods is a decentralized non-custodial options protocol. Users can create options and trade them through an Options AMM on the Ethereum Blockchain. Pods is the easiest way to hedge crypto in DeFi.
We invite you to take the first step in your new mission: start testing the app on app.pods.finance
Join the Pods community
app | website | documentation | blog | twitter | youtube | telegram | discord
