Fusion is unique in being home to Futures/Options DEXes, which are compatible with the Chainge Universal assets. Options are perhaps the most difficult to fully understand. Even if you have experience trading options elsewhere, you need to be aware that there exists different options systems that vary from one another a great deal in their execution. So before engaging it is important to learn Chainge-style Options specifically.

 

It's useful if you first understand time-slices because in a sense options can be seen as derivatives of time-slices, even if the creation happens in another way technically, a slice had to burn for an option to be able to be created as a FRC758 type asset. And seen from this perspective options could be considered an extra way to extract time-value (in addition to time-framing strategies), but possibly with even  higher rewards and a certain level of risk added to the equation. Seen in this light the natural starting point is looking at how the options are created.

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Anyone with a Chainge wallet can create options at any time, by navigating to the "banking" tab in Chainge, scrolling left to "Options" and choosing either "Write call options (CO)" or "Write put options (PO)". In order to be able to do it, the user will need the TF-asset of the asset they want to write options for CO, and for PO, they instead need TF-USDT, regardless of which asset they desire to write PO for.

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Each option (both COs and POs) will have a certain strike price (sp). The sp is equal to the "cost" of writing the options. I write "cost", because in truth it's not a true cost, but it does mean you will be locking away that amount TF assets in order to create the option. But even after the option is created, it can still be considered your money, at least as long as you still posess the option. The reason for that is that, at any time you can cancel the options and get the TF assets returned to you. This is entirely free of charge, as long as you were the one who wrote the options.

 

You could even sell the options, and later buy back an equal amount of options and still be able to cancel the options free of charge. The way balance of these sold options is displayed within Chainge, may be a little scary for users, in the sense that it isn't entirely obvious that it's a balance that still holds potential value. This fact probably scares many users from writing options and may be partly on purpose by Chainge, because it is likely the most powerful tool of all that exists within the app, when it comes to highly secure time value extraction potential.

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In terms of finding the strike prices for 2023. See the list below, or just look for it within the app.

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FSN CO 0.2 FSN PO 0.5

BTC CO 15,000 BTC PO 30,000

ETH CO 850 ETH PO 2200

CHNG CO 0.07 CHNG PO 0.18

BNB CO 200 BNB PO 450

ARB CO 1.2 ARB PO 2.0

AVAX CO 10 AVAX PO 25

LTC CO 60 LTC PO 150

DOGE CO 0.07 DOGE PO 0.15

ETC CO 15 ETC PO 34

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In all cases the CO sp is lower than the PO sp for the same asset, this is highly unusual and not something to intuitively expect. It also means at least one option type (and many times both types) will always be ITM (in the money). You can read my article "Are you a bear or a bull? What Tactic should you use in Chainge Finanace 2023?" to get an idea about the indirect effects of that and how try to navigate in that landscape.

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So, how can the options can be used? Let's first assume that you wrote an option. In this case you have three choices. 1. You can cancel it (a bit meaningless) 2. You can sell it (or part of it) 3. You can provide liquidity for it. In Chainge providing liquidity for many options against USDT has quite high rewards. You can also provide liquidity for Chainge options on freemoon.exchange and choose the counter asset to be whatever you want, though without any extra reward. Pools consisting of an Option against the asset itself, can be quite interesting lower risk alternative to holding an option.

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To cancel the option right away is rather meaningless, so most people who write options will, in most cases, sell it, provide liquidity for it, or a combination of the two (selling half of them in order to bankroll the USDT needed for the pool tends to be popular).

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If an option is trading high, selling options can indeed be quite lucarative. When you sell an option you get two things, you immediatly get the USDT that you sold the option for, but you also get a "sold option balance" (this is not worthless! It's usually worth even more than what you got for selling the options). There are two things that can happen to that balance. 1. Nobody ever excersizes the options. This means you get back the assets you used to write the options at the end of the year! Great news! 2. Someone bought your assets! Also great news! You got some money, even though it is generally less good than keeping the assets, it's not bad (sometimes it might end up even better due to the unexpected turns of the crypto markets). If you wrote CO, you will get paid the sp in USDT for each CO. If you wrote PO, you will instead get as many of the volatile asset as you had PO. Perhaps the main reason 2 can sometimes be even better than 1, is that the money is released earlier, meaning you can reallocate it somehow to make even more money.

 

Often you can end up with a large percentage of the money you started with as liquid assets, and could, if you wanted, continue the cycle of buying assets and selling even more options over and over (a practise known as "circle it around"). When evaluating such a venture evaluate it in the % gain of the asset you are likely to end up with in the end (taking into account both sold futures, and immediate funds from options selling). If you are selling CO (a bearish tactic), you should evaluate your total gains in USDT, and if you are selling PO (a bullish tactic), you should evaluate your total gains the volatile asset.  If you get used to this way of thinking, you should be able to find many opportunities that beat the regular TF "earning", while still being 100% safe and paid out even earlier (though it should be noted that payouts are likely to come at the most inconvinient of times, a pump if you sold CO, and a dump if you sold PO). But the level of safe gains these opportunities offer, makes them worthwhile pursuits.

 

Note: Consider that by selling options you are giving up on the yield you could have had from LPing them. Always wheigh in if that's a yield worth giving up on. Sometimes it might be, but sometimes not. It's definatly often a tough question to answer ahead of time for high yield option pools.

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But enough of writing/selling/LPing Options. Let's not forget that Options can also be bought. What reason is there to buy options? Is there one, or is it just a way to extract time value?

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The answer is obviously that Options can be worth buying, but it can be a risky enterprise. The first thing you need to keep in mind before buying, is their temporary nature. When the year is up they will be worthless, regardless what happens, so before the year is out you should look to at some point either sell them or excersize them. If you don't do one of these things you're just giving someone else (the options writer) some money. This can't be stressed enough, because some option systems have automized excersizing when the option expires. This is not the case for Chainge-style options!

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I guess selling/liquidation, is pretty straight forward (as long as you don't forget about it), but let's look at excersizing for CO and PO respectively. Excersizing is in some sense the reverse of writing options. But there's a key difference which perhaps makes it more appealing for bots than humans. Humans don't stand ready to act 24h a day, they value more a chance to secure funds in a wise move, without having to constantly hound it for opportunity. This means humans don't mind locking away liquidity in exchange for secure rewards. A bot on the other hand can always be active in it's specialized field and take action immediatly, but should naturally fear locking in money, as that is liquidity lost and unavailable if an opportunity arises. Excersize arbitrage is usually such a quick and limited opportunity. If an option at a certain point is cheaper than the TF price minus the sp, then a bot can immediatly buy the option and excersize it to secure the TF asset at a net gain (perhaps it will be programmed to also liquidate the TF, and sell the asset back to USDT in order to fully secure profits). The point is; bots will quickly use these opportunities, because it means no money gets locked. While in the "circling around" structure there is usally much greater profit, but liquidity is given up in the process (which suits humans).

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Because of this I don't reccomend trying to look for good excersize opportunities. Let the bots handle that. Or if you want to get involved with it. Learn how to launch a bot (way too advanced for this guide).

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If you're a whale, excersizing could, however, also be interesting. A whale can secure a large amount of CO or PO, for the purpose of excersizing them in large scale all at once after slowly having accumulated the options in a rising (for CO) or falling (for PO) market. In this case it might be valuable, because the effects of trying to sell such a large amount of options, would affect markets a lot, and result in worse deals than excersizing.

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But to get back to why buying can be worthwhile: This has to do with the way Option prices will navigate near their strike prices. If near the strike price, gain or fall in price of the spot asset will have much steeper effect in the options market.

 

Let's take asset XXX as an exmple. XXX is currently trading at 9c with a CO sp of 8c and a PO sp of 10c, and current market price of XXX CO is 2c for both the CO and PO. Normally you won't get such an "even" situation in real markets, but it's a good example for demonstration. Now Mr Bull thinks the price of XXX will rise to 40c, if he is right about this he could buy XXX and gain 4,44x in profits. But if he's really convinced he could instead buy XXX CO which costs only 2c, and if XXX is truly to hit 40c, a likely price for XXX CO would be 32c (when assets trade way beyond the sp, options value will be determined purely by arbitrage and the XXX CO is very likely to be close to XXX value - sp). So 32/2, means he'd do a whooping 16x, which is a lot better than 4,44x. The risk here is if XXX doesn't gain in value at all. Instead it deteriorates and doesn't recover before the year is over. This scenario would likely see the XXX CO value deteriorate even quicker than the value of XXX.

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But let's also look at Mr Bear who considers Mr bull a turd who has no clue what he is doing and living in a fantasy world. Mr Bear is instead dead certain that XXX will go down in value, and even goes so far as to bet on it and buys XXX PO. He's sure this will be a sinking ship and estimates it'll go as far down as 4c. Now he could just hold USDT and wait for the price to drop and pick up a bag at the bottom (which is 2,25x the bag he'd get compared to if he'd buy in today), but maybe he could make even more money by holding XXX PO instead, if this plays out the way he thinks it does? In that scenario PO is likely to be worth at least sp - XXX value (10 - 4) which is 6c. And 6/2 = 3x, which is better than 2,25x. Perhaps more important in this case though, is that he doesn't risk missing the bottom. The PO will grow in value as price drops, so he merely needs to be correct on the market direction to get a win.

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So, as you can see though options writers and LP of options have great opportunities to secure high value relatively risk free, options buyers stand a chance of even higher gains, if they manage to buy the right thing. All together it plays out well with all kinds of players with different needs, desires or speculations all beting against one another in one way or the other.

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