Thread by @killakween444

1/ Atlantic Options by @dopex_io $DPX

If you were confused, don’t worry, so was I.

For all you visual folks (and smooth brains like me) out there, I gotchu fam.

💎 Presenting: Atlantic Options Visual Edition 💎

2/ For purpose of all discussion, we will be observing puts only. Calls can be seen as the inverse of this illustration.

Some basic understanding of how the #SSOV vaults at Dopex and options in general is required to understand this illustration.

3/ But just to recap, a put option gives the buyer the right (but not obligation) to sell a token at a fixed price (strike) on a specific date (expiry).

The option writer is the counterparty to this trade and collects the premium paid by the buyer for the option.

4/ Taking an example of $ETH put option at a strike of $2,400 for next Fri.

If $ETH trades under $2,400 on next Fri, the buyer profits since he can sell his $ETH at $2,400 (above the market price). The option writer has the obligation to buy this $ETH (at a loss) at $2,400.

5/ If $ETH trades above $2,400, the option expires worthless, and the writer keeps the premium.

Regardless of which way the option trade goes, the premium will be kept by the option writer.

6/ In a traditional put option trade, the option writer puts up collateral (USDC) and the buyer will pay the premium to purchase it.

This collateral sits in the protocol (doing nothing) until the option expiry, where the option is settled in cash.

This is capital inefficiency.

7/ In Atlantic Options, the above is still true, but the option buyer can put up the underlying token, to unlock usage of the collateral put up by the option writer.

You can think of this similar to how you can loan USDC by putting up collateral in a lending protocol.

8/ A portion of underlying tokens put up by the buyer will be taken as a fee for borrowing the collateral.

Now, the buyer can hedge his token position AND use the collateral from the option writer productively.

He could ape into shitcoins or just farm it for some degen APYs.

9/ If something goes wrong, and the buyer loses the collateral by the option expiry, the underlying tokens will be partially transferred to the option writer to make up for the collateral lost.

This is to ensure that the writer is not put at additional risk in this transaction.

10/ Of course, if nothing goes wrong, the buyer ends up with additional returns from whatever he chooses to do with the collateral and the writer ends up with the premium PLUS the additional fee paid by the buyer to unlock his collateral.

11/ The ability to move collateral expands the applications for Atlantic puts and this is explained in the whitepaper written for Atlantic options by @tztokchad:

drive.google.com/file/d/1r41Ma8…

One of the use cases that I really like is Nested Puts:

12/ Nested Puts

Buyer uses the collateral to sell a put at a strike lower than the original put that he purchased. For example, buying a put option for $ETH at $2,400 and selling a put option at $2,200.

13/ If the token price falls below both strikes, the buyer sells out his original underlying and repurchases it at the lower strike.

If not, the buyer still earns from premium received from the sold put.

This is similar to how a bear put spread works:
investopedia.com/terms/b/bearpu…

14/ Many other possible applications are covered by @1sat1c in his thread here:

https://twitter.com/1sat1c/status/1487773422952321028?s=21

15/ Overall, Atlantics will greatly increase capital efficiency and push the boundaries of what is available, not just for apes like you and I, but more so on a protocol or fund level where capital efficiency is of top priority.

Are you ready anon?

$DPX