Ethereum
$245.20 2.52%
ETH · 4w

Crypto Derivatives Exchange OKEx Launches Options on Ether

Malta-based cryptocurrency exchange OKEx rolled out option contracts on Ethereum’s ether (ETH) token on Thursday, ending the Panama-based Deribit’s virtual monopoly in the space.

“OKEx ETH Options Contracts will be settled in ETH. Each contract’s face value of ETH/USD options is 1 ETH,” Jay Hao, CEO of OKEx, told CoinDesk. 

Options are derivative contracts, which give the buyer the right, but not obligation to buy or sell the underlying asset at a predetermined price on or before a specific date. While a call option represents a right to buy, a put option gives the holder the right to sell. 

The mark prices of exchange’s options are determined by the Black-Scholes model on a real-time basis, and the final settlement price will be generated via a time-weighted average of the underlying price over a period of time ahead of expiry. 

To avoid what OKEx calls a “societal clawback”, the exchange has already established an ETH/USD options insurance fund of 1,000 ETH, worth about $240,000 as of Friday. Clawbacks occur when the exchange’s insurance fund lacks sufficient reserves to cover investors’ total margin call losses. Exchanges face such shortages and socialize losses by clawing back a portion of the gains of profitable traders when the market unexpectedly sees a big bullish or bearish move, leading to forced unwinding of long/short positions. 

“Options would give traders more versatility and a great way to hedge their risk,” said Hao. Ether’s fortunes are closely tied with the use of Ethereum in decentralized applications (dApps). Hence, one may argue ether options are hedging instruments for dApps.

Investor interest in the crypto derivatives market has exploded this year, with open interest in ether futures listed on major exchanges rising by 100%. Meanwhile, open interest in ether options listed on Deribit has skyrocketed by over 900%, according to the data provided by the crypto derivatives research firm Skew. 

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