How To Get Started With AladiEx Options
What is an Option?
Option is a financial instrument that allows traders to buy or sell the underlying asset at a predetermined price, either before or at a certain date. Options can be based on a wide range of underlying assets, including stocks, commodities, indices, currencies, cryptocurrencies or even another derivative product. The purpose of options trading is to hedge the risks on existing positions, or for speculation.
AladiEx Options is designed to enhance a user’s trading experience and lowers the entry barrier for personal users. AladiEx Options are a simplified version from traditional options. AladiEx Options focus on intuitive design and flexibility in a bid to bolster the users' accessibility to maximize their profit.
AladiEx Options are American-style options that can be exercised any time before the expiry period. It is also worth noting that AladiEx Options are cash-settled and there is no physical transfer to the underlying asset of the contract.In traditional options markets, American-style options are usually worth more because of the flexibility that they offer.
As of today, AladiEx Options tracks two underlying assets, which are BTCUSDT and ETHUSDT perpetual contract.
Table 1 indicates the contract specifications of AladiEx Options.
AladiEx Options contracts will remain valid until the holder exercises the option any time before the expiry period or when the option expires. Therefore, users do not have access to an order book as the only way out of a contract is by settlement.
What is the difference between AladiEx Options and Traditional Options?
In traditional options markets, traders can choose to be an Options buyer(holder) or Options seller (writer). An options holder has the right to buy or sell the underlying asset at a pre-set price before the expiry period. On the other hand, options writers are Parties who have an obligation to deliver the underlying asset at a pre-set price to the Options holders.
For AladiEx Options, AladiEx is the sole-issuer of the product. Thus, users can only be a buyer of AladiEx Options. As an options holders position, users of AladiEx Options are not exposed to unlimited downside, unlike traditional options sellers. In this case, the maximum loss would be the premium paid for the options.
- Intuitive and straightforward design
The traditional options products typically offer multiple ranges of expiration period and strike prices. Consequently, it is popular to have hundreds of option contracts tracking a single underlying asset.
The fragmented liquidity landscape is created by this market structure, where contracts that are far out-of-the-money and furthest away from the expiration period cause illiquidity. As such, trading with those contracts, users face a range of challenges due to transaction costs and trade execution.
In contrast, AladiEx Options provide only one strike price. Therefore, users don’t need to go through the hassle of choosing over a range of strike prices and expiry period. In other words, AladiEx Options are always ‘at-the-money’.
Furthermore, AladiEx Options offer a unique opportunity for investors to trade with expiry windows as small as 1 minute apart, providing a wider selection of trading strategies to users. Users can earn leveraged returns up to 95% within 1 min.
- Risk and Profit Mechanism of AladiEx Options
AladiEx Options has drawn comparisons with unique options products such as Binary options, probably because of the short-term durations that it offers. However, it is worth noting that AladiEx Options do not adopt a fixed pay-off structure that is embedded in Binary options.
With AladiEx Options, the expected returns are variable that depend on each contract. As the price of the underlying asset moves beyond the breakeven price, AladiEx Options may offer unlimited upside potential with limited downside risks. In other words, profits gained from AladiEx Options are unlimited.
With AladiEx Options, the expected payoff is variable. As the price of the underlying asset moves beyond the breakeven price, AladiEx Options may offer unlimited upside potential with limited downside risks. In other words, profits gained from AladiEx Options are unlimited.
Even though there are significant differences between AladiEx Options and traditional options, the Risk and Profit Mechanism of AladiEx Options have similar characteristics to traditional options.
The following illustrates the pay-off diagram for AladiEx’s Put and Call options:
Diagram 1 - Pay-off for Call Option
Diagram 2 - Pay-off for Put Option
Both diagrams show that as price moves beyond or below the strike price, the payoff of the option moves accordingly. If the underlying asset fails to move further than the strike price at expiration, the option expires worthless.
On both diagrams, the breakeven point would be strike price plus/minus premium (depending on call or put option).
How do AladiEx Options differ from current crypto Options?
The most contrasting difference between AladiEx Options and current crypto options is that AladiEx Options are American-style while existing options are European-style. This feature distinguishes AladiEx Options from others as American-style options allow users to exercise the options any time before the expiry period. In traditional options markets, American-style options are normally worth more than other types of options because of the flexibility that it offers. Thus, it is common to have American-style options trading at a premium to European-style options.
- Liquidity and trading volume:
The current crypto options markets have extremely thin order-books and low liquidity, with only a few BTC exchanging hands each transaction. This is shown by observing the daily trading volumes of existing crypto options platforms.
On most days, the aggregated daily BTC options volume is below $100 million, a stark difference when compared to the daily BTC futures volume which averages at $1.5 billion.
One of the reasons for the low liquidity and volume is due to the lack of option writers/sellers, who acts as a counterparty for option holders. This is no surprise given the intensive capital requirements involved in options writing/selling, which means it is out of reach for retail users. Hence, trading in these illiquid options markets may pose challenges such as wide bid-ask spreads and execution risk.
In contrast, the AladiEx Options market processes an enormous volume of options and has an uncapped supply, as AladiEx is the sole-issuer of the product. As shown, daily volumes on AladiEx Options have grown tremendously since its inception. In fact, it has surpassed existing option platforms by daily volumes.
- Premium and Fees
Trading fees: 5%.
- Trading commission policy
- Your rank will be updated every Monday.
- The trading commission will be paid based on your current level and being paid every Monday.
- Agent Rights Policy
- Condition to eligible an Authorized Agent commission: $100 USDT/Agent.
- You will get the upgrade to Level 1 when purchase Authorized Agent
- Your rank will be updated every Monday.
- IB bonus of Level 1 will be paid immediately. IB bonus of Level 2 - Level 7 will be based on your Level the previous week.
Unlike existing crypto options products, AladiEx Options are straightforward and intuitively designed. AladiEx Options simplify options trading as it eliminates the need to keep track of multiple and different expiry periods and strike prices.
The traditional options products tend to be less liquid, especially for far out-of-the-money options. To avoid this, AladiEx Options are designed with only one strike price to concentrate liquidity in one contract. As such, AladiEx Options are competitively priced and offer deep liquidity.
AladiEx Options offers access to high leverage up to 95% with no liquidation risks. It also offers limited downside risk as the maximum loss of option buyers is the option premium. Users can use it to speculate on short-term price movements or help reduce risk exposure in underlying assets.
Transactions are made between traders (buy and sell), not between traders and the Options Exchange.
All trades are executed on the market at market price. There is no guarantee that the price you see on the screen will be the exact price that you execute at, although it will generally be very close. Small orders or orders executing during 'normal' market behavior will always be nearly exact, but large orders, or orders that execute during 'volatile' market behavior, may deviate somewhat based on order execution.
There is no guarantee that your options purchase will execute at a profit after the premium has been deducted. Most options purchases will not be profitable, but a minority will be very profitable. Please use it at your own discretion.