The World Series of Options p.1
This article is the first of many in this series to introduce an exciting new project launching on the Terra network in 2022!
The mission of The World Series of Options is to perform best-in-class education to those wishing to employ options strategies in any asset class, including digital assets, to reach their investment objectives using a fun, interactive, NFT Tournament-Style platform which is community driven and wholly collaborative.
There will be myriad elements of this project deployment, all of which will be covered in their due time. For this article, let’s talk a little about what options are and why the digital asset industry, specifically DeFi, has been slow to incorporate this powerful asset class into its suite of products available at scale… and why The World Series of Options is a huge step in the right direction to making “The Holy Grail of DeFi” a reality.
Options are complicated financial instruments which are derivative products of an underlying asset. Commonly used by speculators to achieve leveraged gains, they are generally misunderstood by novice users. We’ll fix that.
Options are Rights. They are composed of the ‘Right to Buy’ (Calls) and the ‘Right to Sell’ (Puts) of an asset at a specific price (Strike Price) on (or depending on style of option… before) a certain date (Expiration Date … or Expiry). To most, just that much can appear confusing.
An option’s price is ‘derived’ from the value of an underlying instrument. The inputs to a simple model (Black-Scholes) for deriving an options value are:
Price of the Underlying
Volatility — Plenty to come on this topic
Risk Free rate of interest
Any dividends (for equities)
In the digital asset arena, creating deep and liquid markets through an AMM-like pool structure has become quite the task due to their derivative nature and several on-chain challenges. The options platforms that have attempted to launch options on non-core tokens in DeFi find themselves either without liquidity and/or with subpar dynamic pricing models. This inevitably leads to a horrible experience either for the liquidity provider (typically an option seller or ‘underwriter’) or the option buyer.
We have full faith that these issues will be worked out in the future, but for now, there aren’t a lot of options (bad boomer pun) … to be traded on digital assets in DeFi beyond $BTC and $ETH, the largest cryptocurrencies where some … and not many … well run protocols exist today to facilitate these transactions. We are not competing with those platforms. In fact, users of their services should find real value in the WSO platform. Future posts will cover the specifics of why all of this is the case … but on to World Series of Options. We’re going to change the game.
Digital Asset NFT Tournaments
World Series of Options (WSO) will be creating a NFT Tournament Series paired with full-suite options education. Participants will mint randomly generated option strategies relating to several Terra projects like $LUNA, $ANC, $MIR, $bETH, $MINE, $STT … the list continues to any verified Terra project with a market cap of over 5,000,000 UST. This cutoff is to prevent any potential manipulation of tournament outcome.
RANDOMLY GENERATED? WHY CAN’T I PICK MY OWN STRATEGY?
It’s best to think of this project like a series of poker tournaments. When you’re dealt a Texas Hold ’Em hand, you don’t have any control over what two cards you’re dealt … and you don’t have any control over the flop, turn, or river. You control what happens in between.
Once a participant has minted a strategy (there 18 option strategies in total being used in WSO) that participant may freely sell this strategy on a TBD NFT Marketplace. The tournament will run the length of the expiration cycle (initial tournaments will be one week long … additional choices to come). Other participants, whether they minted or not, will be able to purchase these strategies which will all have a specific ‘mock value’ at the end of the tournament. The payout structure of the tournament will be determined by the relative positioning of the minted strategy to all other strategies. The top 25% of all strategies at expiry will receive tournament prizes with 1st place receiving up to a 100x payout or more dependent upon the size of the tournament.
To participate, there is no experience with options necessary. The WSO team will be providing education on all options strategies used in tournaments prior to launch and will continue to build this education platform as the project continues to develop … and it WILL develop with plans for a token to share in the revenues generated by the protocol, held in a dynamic vault, with a dual-DAO structure for governance to manage both the protocol direction as well as vault deployment.
No Experience Necessary:
A novice trader can participate in the tournament and receive, for example, the $LUNA 120% Moneyness, 50% Volatility, Naked Long Call strategy …
Using today’s prices, suppose this EXTREME series of events:
$LUNA <start> price = 61.26 UST (determined by oracle set at blockheight x)
Strike Price = 61.26 x 120% = $73.51 (determined by moneyness characteristic)
Volatility % = 50% (volatility characteristic)
Strategy Price = $0.0061 (per Black-Scholes option pricing model)
Contract Size = 100 LUNA per contract (fixed)
tUST (tournament UST) = 10,000 UST (fixed)
Total Contracts = 16,393.4 (derived from tUST / strategy price x contract size)
LUNA <end> price = 95.77 UST (determined by oracle at blockheight y)
<Naked Long Call> Strategy PnL = +36,481,797.4 UST [(<end price> — <strike price> x contract size x total contracts) — tUST]
Tournament Position = 1 (assuming no other 10K UST strategy made more than 36.4M
Total experience to achieve = 0
It’s a stretch to assume that you can buy over 16,000 LUNA (12.25 UST out of the money) calls for under a penny under any real market conditions. This is an extreme example that details the characteristics inherent to WSO tournament participation. Someone would have to sell those under real market condition … and they’d get rekt … and the protocol who guaranteed the trade would go under … and therein also lies a problem with options on highly volatile instruments.
The WSO tournament series will be LIMITED RISK with significant reward opportunity. All participants in each tournament will receive the same number of $WSO tokens as reward for participation. (receipt for airdrop prior to TGE, tokens thereafter)
WSO webapp will detail strategy tUST values throughout any given tournament lifecycle.
Follow us on Twitter @WSO_Options and join our discord https://discord.gg/uuE3CnQztF
Future articles will cover the $WSO token / Tokenomics / Utility, WSO vault plans, options strategy education, Terra project partnerships, NFT Mockups, future tournament features, website sneak-peeks, and more … until next time, #tradebetter
This is not financial advice. The World Series of Options platform is being built for educational and entertainment purposes only and does not represent any security of any kind nor an offer to buy or solicitation to sell any security.