Options with longer expiration

Now the longest expiration for the FinNexus Options is 30 days.
We got constant request to have expiry longer than 30 days. The smart contract already reserves the possibility to do it.
However it may bring some further risks to the pool if the options are not priced well, which is challenging to all options protocol, even in Deribit.

What do you think?


Personally I prefer trading options with longer expiration. I use Deribit and mostly go for Dec2021 expiry. I have no idea what most users prefer to do, but if the options are priced in a way that doesn’t present too much risk for the pool it would be worth considering. Maybe a way to compromise would be to only allow a small percentage of the pool risk for longer expiry options (if that’s possible).

1 Like

I think this really connects to how much you believe the Black-Scholes formula works for the crypto-markets…

The problem is not BS model, it is the IV derived from the market. As for some OTM and ITM IVs with long periods, even Deribit has very shallow market depth, and the IVs from the ‘market’, if we assume there is a market of this kind, are not reliable.

What we do now is to mapping the IV surface with a stochastic model.

Ideally we would have accumulated enough data on the risk profile of the current options offered to compare to the premiums collected to better gauge the current risk exposure of the pool. I feel as if longer dated options may not price optimally for a black swan event. If the pricing is optimized for risk and the percentage of the pool exposed was capped as mentioned above it would be worth it IF it increased pool utilization which I think is still suboptimal.