CoinFLEX’s Options are not priced by market makers in a central limit order book. Instead there is a visual display where users can see a variety of different trading strategies, durations and the payoffs associated with each. Users can also cash out or exit a trade at any time.
What this means is that the other side of a user’s trade is the Options AMM Account. This account prices the odds of every options trade and the price of cashing out of the trade in real time, once the user has entered into a trade. The Options AMM uses complex options pricing models to price the options and skews prices based on recent trades placed by traders i.e. if there are a large number of bullish traders, the options payoffs will skew to reward bullish strategies less and bearish strategies more to even out expected payouts and prevent any potential market manipulation.
The Options AMM does zero hedging, so if a trader wins money, the Options AMM account will lose money. There is a variable edge in the Options AMM pricing equal to 5% on the trades and up to 20% on the more volatile trades. We will adjust the edge from time to time as the Options product encounters more volumes.
Anyone can participate in the Options AMM account by staking FLEX into it. If the AMM account has 9900 FLEX in it so far and a user stakes 100 FLEX, they are entitled to 1% of the FLEX in the Options AMM account. As new stakers come in, they will dilute the % of existing stakers, so for example if another 10,000 FLEX is staked on top of the first 10,000, then the 100 FLEX staker would go from 1% entitlement to 0.5%.
Does CoinFLEX take commission from the Options AMM profits?
Currently CoinFLEX does not take any commission from the Options AMM profits but we are planning to institute a up to 50% commission within the first 3-6 months of the product.
How do I contribute to the growth of the CoinFLEX Options product as a staker?
After an initial trial period where the maximum FLEX bet is limited to 1000 FLEX, the maximum trade size will be weekly adjusted to 0.25% of the Options AMM account, so by staking FLEX you are increasing the maximum amount that someone can trade in any of the options products.
How do I know CoinFLEX’s Options AMM’s interests are aligned with myself, as a potential FLEX staker?
CoinFLEX is seeding the Options AMM account with 2 Million FLEX coins and may increase our allocation over time, at which point we would update publicly. We are happy to be the only risk takers in the Options AMM account if no users decide to stake FLEX, however it is in our interests to grow the size of this AMM account as it will increase the max trade size in the options product. CoinFLEX is also a large owner of FLEX coins and is interested in creating as many real world use cases for FLEX Coin as possible.
Is the Options AMM Account at odds with traders in the FLEX Options product?
No, the Options AMM is the risk-taking account that allows traders to have access to 24/7 pricing in options on a number of cryptocurrencies across a number of time frames. The Options AMM can and will lose money on trades, but is counting on it’s edge and the law of large numbers to make up any one specific loss over the long run. Stakers in the Options AMM account are risking their FLEX in exchange for that edge over that long run. If the edge is too high for traders to be interested in trading, then the Options AMM will make less money as users are disinterested or burnt out. So the edge may be periodically adjusted from time to time to ensure the maximum outcome for trader’s volumes and Options AMM’s profits.