Advanced Trading Optimization
Last updated
Last updated
To date, there are limited DeFi protocols that effectively support the ability to trade liquid option spread strategies while ensuring a positive sum with their liquidity providers.
IVX stands out for its built-in advanced trading optimization and by that the ability to offset its own risk as a counterparty is particularly advantageous for traders who use complex trading strategies like price spreads, calendar spreads, and butterflies. These strategies typically involve the simultaneous buying and selling of multiple options contracts, which can be time-consuming and expensive to execute manually. With IVX, these trades become simpler and more cost-effective with a simple click.
Instead of charging traders bid-offers on every individual leg of a multi-option trade, IVX aggregates the risk profiles of each option in a trade and generates a fee that reflects any reduction in the net risk to the LP that arises from entering an advanced trading strategy.
By providing competitive bid-offer spreads, IVX is enabling traders to execute larger option spread trades with lower transaction fees and other associated costs. This makes it easier for traders to minimize their exposure to potential losses, and to take advantage of the potential benefits that come with option trading.
Spread trades are commonly employed strategies in financial markets that entail the simultaneous purchase, and sale of two or more options to exploit price discrepancies and/or mitigate risk.
Examples:
Horizontal spreads: buying and selling options with the same strike price but different expiration dates. This strategy is used to capture volatility or time decay.
Vertical spreads: Buying and selling options with different strike prices and the same expiration date. This strategy is used to capture a 1 side bullish/bearish trend.
Diagonal spreads: Buying and selling options with different strike prices and different expiration dates. This strategy is used to capture time decay and a directional movement of a certain asset.
Long butterflies spreads: Buying and selling three options with different strike prices to capture low volatility of a certain asset.
Strips and straps: Buying and selling three options with different strike prices to capture a profitable position in either direction and to limit the initial cost of the trade.
Spread Trading will add more capital efficiency to traders' portfolios by allowing them to have :
Cheaper execution price slippage especially within Dynamic Fees
Lower maintenance margin required offering higher substantial leverage
Complex pay-off structure
If you wish to learn more about options strategies and how to implement them on IVX, don’t hesitate to visit our Medium page here.
