Options Trading Basics
Options are contracts that give you the right—but not obligation—to buy (call) or sell (put) an asset at a specific price (strike) before a certain date (expiration). In DeFi, these contracts are implemented as smart contracts, removing the need for trusted intermediaries.
Call Option (Bullish)
Right to BUY at strike price
- • Profit when price goes UP
- • Max loss = premium paid
- • Unlimited upside potential
Put Option (Bearish)
Right to SELL at strike price
- • Profit when price goes DOWN
- • Max loss = premium paid
- • Max gain = strike - 0
Key Options Terms
DeFi Options Protocols Compared
Dopex
Key Products: Single Staking Option Vaults (SSOVs), Atlantic Options, rDPX synthetic bonds
Best for: Passive income through SSOVs. Deposit and earn weekly premiums from option selling. DPX token governance and staking rewards.
Lyra
Key Products: Options AMM with dynamic IV, Newport upgrade, ETH/BTC vaults, covered call strategies
Best for: Active options traders wanting fair pricing. AMM model means instant liquidity and transparent IV. Good for both buying and selling.
Aevo
Key Products: Options + perps on own L2, pre-launch token trading, structured products
Best for: Highest volume DeFi options. CEX-like experience on dedicated rollup. Pre-launch token options for airdrop speculation.
Premia
Key Products: P2P options, auto pools for liquidity, vxPREMIA governance
Best for: Highest vault yields in DeFi options. P2P model for custom strikes and expiries. Good token economics with vxPREMIA.
Options Vault Strategies
Options vaults are the easiest way to earn yield in DeFi options. You deposit collateral, and the vault systematically sells options, distributing premiums to depositors. Here's how each strategy works:
Covered Call Vaults
Deposit ETH/BTC, vault sells call options weekly. You earn premiums but cap upside if price exceeds strike. Best in sideways or slightly bullish markets.
Cash-Secured Put Vaults
Deposit stablecoins, vault sells put options. You earn premiums but must buy the asset if price drops below strike. Best way to accumulate at lower prices.
Strangle/Straddle Vaults
Advanced vaults sell both calls and puts at different strikes. Higher yield but exposed to both directions. Best in low volatility environments.
Buying Options for Leverage
Buying options provides leveraged exposure with defined risk. You can only lose the premium paid, but gains can be substantial. Here's when to buy:
When to Buy Calls
- Expecting significant upside but want limited downside
- Catalyst events (upgrades, announcements, TGE)
- When IV is relatively low (cheap premiums)
When to Buy Puts
- Portfolio insurance against downside
- Bearish thesis without shorting spot
- Before uncertain events (FOMC, CPI)
Advanced Options Strategies
Bull Call Spread
Buy a call at lower strike, sell a call at higher strike. Reduces cost but caps upside. Example: Buy $3,200 call, sell $3,500 call. Profit if ETH goes up, but max profit is $300 per ETH.
Calendar Spread
Sell near-term option, buy longer-term option at same strike. Profits from time decay (theta). Best when expecting stable prices short-term, movement later.
Iron Condor
Sell put spread + sell call spread. Collects premium from both sides. Profits if price stays in range. Common vault strategy for high IV environments.
Risks and Greeks
Critical Risks
Total Premium Loss
Buying options can result in 100% loss of premium if option expires OTM. Size positions accordingly.
Vault Assignment Risk
Selling options through vaults means you may be forced to buy/sell at unfavorable prices during large moves.
IV Crush
After events, IV typically drops, crushing option values even if price moves in your direction. Time your entries.
Smart Contract Risk
DeFi options protocols have complex smart contracts. Exploits can result in total loss. Diversify across protocols.
Understanding the Greeks
Delta (Δ)
How much option price changes per $1 move in underlying. 0.5 delta = $0.50 move per $1 spot move.
Theta (Θ)
Time decay per day. Options lose value as expiration approaches. Sellers benefit, buyers fight theta.
Vega (ν)
Sensitivity to IV changes. High vega means option price swings with volatility. Buy low IV, sell high IV.
Gamma (Γ)
Rate of delta change. High gamma means delta moves fast. ATM options have highest gamma near expiry.
Interactive Options Calculator
Use this tool to explore DeFi options protocols and calculate potential payoffs for different strategies.
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Frequently Asked Questions
DeFi options are smart contract-based derivatives that give you the right (but not obligation) to buy or sell crypto at a specific price before expiration. Unlike CEX options, DeFi options are non-custodial, transparent, and often offer yield-generating vaults for passive income.
Aevo offers the most CEX-like experience with a simple interface and pre-launch token trading. For vault-based yields (selling options passively), Dopex SSOVs are straightforward. Start with small positions to learn mechanics before sizing up.
Options vaults sell covered calls or puts to earn premiums. When you deposit, the vault systematically sells options against your collateral. You earn premiums weekly/monthly, but may miss upside if price moves beyond strike. Typical yields range 15-40% APY depending on volatility.
European options (most DeFi protocols) can only be exercised at expiration. American options can be exercised anytime before expiration. Premia offers some American-style options. European options are simpler to price and more common in crypto.
Higher IV means more expensive options (premiums increase). During market stress, IV spikes make buying options expensive but selling options lucrative. DeFi protocols like Lyra use IV surfaces to price options—understanding this helps time entries and exits.