Pricing Model

The platform utilizes a dynamic pricing mechanism for both CALL and PUT options, which adjusts in real-time based on the Ethereum (ETH) price and the time remaining until the option expiration. The following outlines the core principles behind our option pricing model:

1. Time-Based Adjustments

The option price is influenced by the time factor. Specifically, as time progresses, the price of options adjusts according to a time-based multiplier. This helps incentivize earlier participation, as the cost of entering an option contract will rise as expiration approaches. Mathematically, the time factor is expressed as a ratio of the remaining time over a predefined time base.

2. Strike Price and Current Price Differential

A key determinant of the option price is the difference between the current ETH price and the strike price. The platform calculates this difference and adjusts the option price depending on the magnitude of this variation. The following cases outline how the price is adjusted based on the option type:

• CALL Options:

  • If the current ETH price exceeds the strike price by a large margin (i.e., beyond a predefined threshold), the price increases to reflect the higher likelihood of profit for the option holder. This is done by incorporating the ETH price difference into the option price calculation, using a ratio that factors in the difference between the current and strike prices.

  • Conversely, if the ETH price is below the strike price, the option price decreases, accounting for the reduced probability of exercising the option.

• PUT Options:

  • For PUT options, the reverse applies. When the ETH price falls below the strike price, the price increases since the likelihood of the option being profitable grows. Similarly, if the ETH price exceeds the strike price, the price is adjusted downward.

3. Strike Difference Factor

The model includes a "strike difference factor" that acts as a threshold, determining when significant price adjustments should occur. If the difference between the current price and the strike price exceeds this factor, the option price undergoes a more aggressive adjustment.

4. Base Share Price Adjustments

At the heart of the pricing model is the "base share price." This value is multiplied by time and price factors to determine the final option price. The formula considers the time until expiration, the difference between the current ETH price and the strike price, and various other factors like the price multiplier.

In certain edge cases where the ETH price and strike price are closely aligned, a minimal adjustment is applied to avoid extreme volatility in the pricing.

5. Liquidation Criteria

For both CALL and PUT options, the liquidation condition is based on the relationship between the current ETH price and the strike price. Specifically:

• CALL Options: Liquidation occurs when the ETH price falls below the strike price.

• PUT Options: Liquidation occurs when the ETH price rises above the strike price.

This ensures a fair mechanism where liquidation only happens when the market price moves in a direction that significantly impacts the profitability of the option contract.

Option Pricing Formula

For a given option type (CALL or PUT), the share price Pnew can be calculated using the following generalized formula:

Where:

• Pbase​ = Base share price (initial price before adjustments)

• Textr​ = Time elapsed since the last strike event

• Tbase​ = Total expiration time normalized by the time factor

• Sdiff​ = Absolute difference between the current ETH price and the strike price

• Sfactor​ = Predefined strike difference factor used to determine significant price movements

For CALL Options:

• If current ETH price > Strike price, the formula adjusts based on the price difference, increasing the price as the current ETH price exceeds the strike price.

For PUT Options:

• If current ETH price < Strike price, the formula adjusts similarly, but in the opposite direction, increasing the price when the ETH price is below the strike price.

In cases where the price difference Sdiff is small, a minimal S Factor adjustment will be applied