First things first, what are Straddles? Straddles are a popular options strategy that allows traders to profit from significant price movements in an underlying asset. To execute a straddle, the trader simultaneously purchases both a call option and a put option for the same asset with the same strike price and expiration date.
Long Straddle (Buying an ATM Put and Call)
The strategy is considered neutral because the trader is not betting on whether the security will rise or fall but rather on the magnitude of the price movement. In other words, the trader expects a significant move in either direction and is prepared to profit from it regardless of the way the asset moves.
One of the key benefits of a straddle is its unlimited profit potential. If the price of the underlying security moves significantly in either direction, the trader can potentially earn a substantial profit as long as the movement is greater than the total cost of the premiums paid for the options.
However, this potential for high profits comes with significant risks. If the underlying asset's price does not move as anticipated, the trader may lose the premium paid on both the call and put options. Additionally, since straddles are typically purchased for a relatively short time period, the time decay of the options can erode the value of the trade if the anticipated price movement does not occur quickly enough.
A short straddle is an options trading strategy where the trader sells both a call option and a put option at the same strike price and expiration date. By doing so, the trader is betting that the underlying asset will not experience a significant price movement, and will instead remain relatively stable or range-bound.
Short Straddle (Selling an ATM Put and Call)
The profit potential of a short straddle is limited to the premiums collected from selling the call and put options, while the potential losses are unlimited if the underlying asset experiences a significant price movement in either direction.
Short straddles can be used by traders who believe that the market will remain stable or range-bound, and who are willing to accept limited profits in exchange for limited risk. Despite these risks, many traders find straddles to be a useful tool in their options trading toolkit. By carefully analyzing market trends and anticipating significant price movements, they can execute straddles to potentially earn substantial profits while minimizing their exposure to market risk.
Atlantic straddles differ from standard straddles on the buyers-side functionalities, offering greater composability to the option buyer through a gated contract that allows the collateral within an option to be lent out. As a liquidity provider, you can deposit collateral to sell puts, call options, or both, while the buyer can utilize the collateral within the option to swap against the base asset, effectively creating the desired Straddle position through a synthetic call or put positions.
$ETH = 1000$ 'Seller' -> Sells ATM Put (1000$) 'Buyer' -> Buys ATM Put (1000$) 'Buyer' -> Swaps option collateral for underlying 'Buyer' -> Now has a similar payoff (Synthetic) to a Call Option even though he purchased a put The same goes for the Call side, where you swap the underlying for stablecoins to have a similar payoff to a Put Option.
In other words, Atlantic options give buyers the flexibility to convert their purchased options into any directional bet. While Atlantic Straddles are currently in their early stages and only allow for the conversion of Put deposits/purchases, future iterations of the product will incorporate additional features.
1 Straddle = 2 ATM Puts when purchasing on the Dopex UI
Note: The buyer of the option is required to pay an accrued funding fee of 36% APR to the seller in exchange for the privilege of borrowing the collateral and using it to acquire the relevant asset.
Our rollover contract allows depositors to have their deposits rolled over every epoch. However, it's important to note that once the epoch begins, any withdrawal requests will have to wait until the options expire. Additionally, if you wish to withdraw your funds without having them automatically rolled over, make sure to disable the rollover feature beforehand. (0.01% rollover fee to cover gas)