Writing Options

A Guide for Liquidity Providers

When writers choose the "Create option" functionality, they will begin crafting either a Put or Call option. During this process, they will need to provide all the essential information about the option they intend to write, including:

  1. Underlying asset: The asset associated with the option.

  2. Quantity of the underlying asset: For Call options, the quantity of the underlying asset; for Put options, the stablecoin amount.

  3. Strike price: The predetermined price at which the option can be exercised.

  4. Premium: The cost of the option.

  5. Expiry period: The duration until the option expires.

Upon completing these fields and proceeding through the confirmation steps, writers will be required to deposit assets into the smart contract. For Call options, this entails depositing the underlying asset, while for Put options, it involves depositing the stablecoin.

Once the deposit is successfully made, the option will become visible to other users of the protocol.

Liquidity providers should take note of the following key aspects:

Duration (Expiry Periods) & Cancellation

  • The countdown for the option duration commences when the option is logged in the smart contract with the deposit.

  • Writers have the flexibility to cancel their option at any time and withdraw the collateral, provided the premium has not been paid. Collateral becomes locked upon a trader paying the premium.

  • In the event that the option remains unexercised (not settled) upon expiry, the funds become available for withdrawal immediately after the option expires.

Premium Pricing & Time-based Reduction

Premiums exhibit a linear reduction over the course of the option's duration. For instance, if the expiry period spans 100 days, the premium will decrease by 1% per day over those 100 days, with reductions calculated on a per-second basis.

If writers find themselves uncertain about the appropriate premium value, there are various online resources available that delve into the fundamental principles and mathematical formulas governing CeFi options pricing.

Contract/Trade Sizing

Eve Exchange's options operate distinctively from the norm, as options can only be fully filled by traders—there is no concept of partial filling or a standardized contract size in Version 1. Therefore, when liquidity providers create options, it is advisable to consider the overall trade size. LPs should acknowledge that larger trades might be less likely to be purchased and settled than smaller ones.

It's important to note that the assumption that smaller trades are more attractive than larger ones is based on observed trading behaviour on other retail-facing platforms. This may not necessarily hold true on Eve Exchange, hence the trade size decision remains completely at the LPs discretion. LPs are encouraged to monitor trading activity to determine the optimal trade size.


To emphasize, we recognize the experimental nature of Version 1 options in terms of flexibility as well as the potential downsides, therefore, we encourage liquidity providers to engage in dialogue with us, openly sharing opinions on the current structure, expressing preferences for Version 2, and offering suggestions to enhance the system for better alignment with your requirements.

If you're a seasoned or aspiring liquidity provider, we invite you to contact us. Your insights are invaluable, and we are eager to hear from you.

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