The first call option at Pods protocol is available now on Polygon!
We are very excited to announce that our first call option series is now available on Polygon! 🎉
Considering the high gas fees on Ethereum Mainnet, we have decided to go first on Polygon, allowing our users to trade and provide liquidity. The first series deployed is a ETH:USDC Call with strike 5500 (+20% OTM), expiring on December 3rd with a cap of $200,000.
A Recap on Call Options
A call option allows the holder to buy the underlying asset at the strike price. It will make sense for the buyer to exercise the option if the market price of the asset is higher than the strike price.
In other words, the option holder will be buying the asset for a cheaper price.
Let’s take the following call option and use it as our example:
PodCall WETH:USDC $4,000 Dec 31st — premium: $20
The following scenarios could happen:
1) WETH Spot price on the 31 Dec 2020 = $5,000
In this case, it would be profitable for the option buyer to exercise the call option as the user would be able to buy ETH at $4,000 when the spot price is at $5,000. In this situation, the option is in-the-money (ITM). Once exercising the option, the option buyer would have had the following (simplified) profit:
Profit = Spot price — Strike price — Premium
Profit = $5,000 – $4,000 — $20
Profit = $980
The same would happen to any spot price above the strike price + premium.
2) WETH Spot price on the 31 Dec 2020 = $3,000
In this scenario, it doesn’t make sense for the option buyer to exercise his option as it is possible to buy the underlying asset (WETH) for a cheaper price in the market. That means the option is out-of-the-money (OTM). As the option buyer paid the premium, we can say that he had a loss limited to the option’s price, which is $20.
Loss = — $20
Conclusion
It is possible to see that for call options, the loss is limited to the premium and the profit is unlimited as the price of the underlying asset increases as shown in the graph below:
Accessing Calls on our App
To have access to call options on our app to buy, sell or provide liquidity, make sure to click on the toggle button from Puts to Calls:
Buying Options
When buying options, the user is willing to buy the underlying (volatile) asset for the strike price if the option ends ITM in the exercise window.
- Step 1: input the amount of the underlying asset you are willing to buy
- Step 2: The premium of the option will show up
- Step 3: Click on Allow and Buy Options button
Selling Options
When selling call options, the user needs to lock in the underlying (volatile) asset as collateral to write the options. In case the option ends ITM and it is exercised, the seller has the obligation to sell the collateral locked in for the strike price.
- Step 1: Add the amount of underlying asset you want to lock in as collateral to write the options
- Step 2: Will show the premium you will receive upfront for selling the option
- Step 3: Click on Allow and Write options to conclude the selling transaction
Adding Liquidity to Call Option Pools
The main difference you will find in the app is on the adding liquidity flow.
Different from adding liquidity to put options pools (where it is possible to do a single asset deposit and let the app zap create options tokens and provide liquidity proportionally), the call options pools don't have a zap yet.
This happens because, in order to provide liquidity, it is necessary to:
- Mint options with the collateral which is now the volatile asset e.g. ETH
- Add stable assets for the stablecoin side of the pool e.g. USDC
Now let's get to the step-by-step:
- Step 1: Mint idle options by locking the underlying asset as collateral
- Step 2: Add liquidity with options and stables. It is important to highlight here that it is necessary to add an equivalent amount of options and stables in terms of value.
- Step 3: Click on Allow and Add liquidity
And that's it! You're ready to use calls on our app 🙌🏼
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
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