DeFi & Options
CLAMM Series 9: No Option Complexity Allowed
This is either the easiest thing in the entire world or I am literally a genius
The main barrier to entry for using options is and always will be complexity.
Strike prices. Calls and puts. Expirations.
So many choices. So little time.
If you had done Nut Meister Author Extraordinaire the kindness of perusing his previous few novels, you would have come to terms with the fact that CLAMM positions are options… just undercompensated.
Today we will explore how Dopex v2 allows CLAMM LP depositors to earn option premiums without necessarily needing to know the nuances of option terminology.
The strike price is the fixed price for an option against which settlement will be calculated.
An option with a strike price of $1,750 will have the spot price at settlement compared against this figure. With the range of numbers from zero to infinity, there are simply too many possible strike prices to choose from for the average option connoisseur.
Thankfully, the strike price is actually an inherent parameter for any option tick. Let’s take a tick with a tick price of $1,750.
Below a $1,750 spot price, you have 1 $ETH. Above a $1,750 spot price, you have $1,750.
Thus, the $1,750 tick can write options for a $1,750 strike price.
Now let’s try this with a $1,850 tick price.
Below a $1,850 spot price, you have 1 $ETH. Above a $1,850 spot price, you have $1,850.
Similar story - the $1,850 tick can write options instead for a $1,850 strike price.
Now if we extend this logic to a $1,600-1,900 price range…
Users can then earn premiums for options with a strike price equal to any tick price within their range without needing to choose their own strikes!
Of course, CLAMM depositors will have the option to select which strike prices they want to allow to use as option liquidity. This might be if they believe the underlying will trade in a specific range and would prefer to earn trading fees rather than premiums.
Calls and Puts
Choosing between calls (the option to buy the underlying) and puts (the option to sell the underlying) is another input parameter - and another source of confusion. The choice between the two is important as it confers directional bias: call writers expect price to be stable or decrease while put writers expect price to be stable or increase.
As a CLAMM depositor, whether you know it or not, you are actually writing both calls and puts from your liquidity.
Dopex uses this logic to allow your CLAMM liquidity to also write both calls and puts!
Spot Price > Price Range
When the spot price is greater than your price range, your position is 100% $USDC.
If you had 1 $ETH initially deposited in each tick, each tick will now hold exactly the tick price worth of $USDC.
All your liquidity can be used to write $ETH puts.
Spot Price < Price Range
When the spot price is lower than your price range, your position is 100% $ETH.
If you had 1 $ETH initially deposited in each tick, each tick now holds exactly 1 $ETH.
All your liquidity can be used to write $ETH calls.
Spot Price is within Price Range
When the spot price is within your price range, your position is partially $ETH and partially $USDC.
Specifically, where the spot price is higher than the tick price, the ticks are 100% $USDC and can be used to write puts. Concurrently, where the spot price is lower than the tick price, the ticks are 100% $ETH and can be used to write puts.
One price range. Two possible option types.
Dynamic Option Type
Now the spot price will change which means the relationship between tick price and spot price will also change. This means a single tick may be usable for both calls and puts at different times as this relationship changes.
All of this is done under the hood with no need for CLAMM depositors to lift a finger.
Option writers also usually choose expirations which is essentially how long an option contract lasts for before settlement must be calculated and collateral is returned.
Another decision, another step in the never-ending quest for trying to work out how a goddamn options interface works!
This is the only parameter that CLAMM depositors have to choose and will be as straightforward as possible - just answer this one single question:
“What is the maximum time I want to allow my CLAMM liquidity to be used”.
It is that easy, my budding readers.
Dopex v2 aims to make earning premiums on top of usual CLAMM liquidity as simple as possible. Users can:
- Deposit CLAMM liquidity
- Select which ticks they want to allow for option liquidity(optional)
- Select maximum lock duration
Annoying things such as determining strike prices and whether to write calls or puts are not required - these features are inherent to the original CLAMM position.
Until next time, my beloved readers.
Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner. Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.
Follow our official social media accounts and visit our website to stay up to date with everything Dopex.
Be careful of fake Telegram groups, Discord servers and Twitter accounts trying to impersonate Dopex.
You’re all done with the CLAMM!