Trading Options on Premia
💎 Time to learn the "how" of crypto options!
It's time to learn how options are traded on Premia Blue:
- Buying and selling
- How options work on Premia
- Settlement via limit- and range orders.
Options are a type of financial derivative that give their buyer the right to buy or sell an asset at a certain time and price in the future. For example, an option could give you the right to buy 1 ETH at a price of $2,200 next Friday.
Options are different from perpetuals in that they don't obligate the trader to complete the swap in the future. Traders simply pay a small upfront cost (premium) for the right to buy or sell the underlying asset.
There are two main types of options: call (buy) options and put (sell) options.
Investors typically buy call options when they anticipate prices to rise, and put options when they anticipate prices to fall. Completing the Options 101 curriculum here in the Premia Academy is highly recommended for beginners before trading on Premia!
Call Options: Grant their holder the right to buy an asset at a specified price and date.
Put Options: Grant their holder the right to sell an asset at a specified price and date.
Trading Options on Premia
Users can buy or sell options on a variety of tokens.
Options on Premia Blue are European in nature, meaning they can only be exercised at or after their expiration. However, users are always able to sell their options before expiration in order to close them. If there isn't enough liquidity to sell into, users can also utilize limit- or range orders to try to exit their positions.
Buying options (long options) on Premia is as simple as navigating to the Trade page, entering the specifics of the option, choosing a quote, clicking "Preview Trade", and confirming the trade.
Remember that call options are quoted in the underlying token. This means that when you buy a WETH/USDCe call, the premium is paid in WETH, whereas put options are quoted in the quote token, meaning the premium is paid in USDCe.
Options on Premia: Options are represented by tokens that can be traded, utilized in range orders, or held until expiration and exercised.
Managing, Settling, and Exercising (Portfolio Page)
The Portfolio page allows users to view and manage all of their open and closed options positions on Premia. This includes options held and open limit orders. On the other hand, range orders can be managed inside the "Range Orders" tab.
Settling (closing) an option can be done in one of two ways: exercising after expiration, or selling to a bid.
If there is available bid-side liquidity on Premia for a given option, the quote will be displayed after clicking "Close" on an option inside the Positions section. If there is no available bids to sell an option, users can set limit- or range orders instead.
Closing With Limit Orders
Limit orders are the second-best way to close an option before expiration on Premia Blue. Users can simply enter the size and price at which they wish to sell their options, and their asks will be available to fill for anyone using Premia. They can also be used to place bids or to directly underwrite (sell) options.
Limit Orders can be found by clicking on the specific option inside the Option-Chain view, and choosing "Limit Order" inside the draggable cart.
- Can be used to attempt to close an existing option before expiration when there's no bid-side liquidity available
- Can be used to buy a specific option that currently has no ask-side liquidity available.
- Can be used to directly underwrite (sell) specific options.
Utilizing Range Orders
Users on Premia are able to deposit their options (and tokens) to be utilized within a range order. Range orders are also a sophisticated way of providing liquidity on Premia, and require basic understanding of options, market-making and concentrated liquidity.
Range order positions require more maintenance than vaults, but can be greatly useful in a few different situations:
- When a user wants to utilize the value of their options pre-expiration, but can't sell due to lack of bids.
- When a user wants to maximize the capital efficiency of their positions and earn maker fees while doing so.
What are the different ways of buying and selling options on Premia Blue?
Users can only buy and sell options directly via the Trade page.
Buying or selling via the Trade page, or by utilizing range- and limit orders.
Users can only trade options on Premia Blue programmatically.