GM PancakeSwap Community,

We are excited to announce that PancakeSwap has teamed up with Stryke (formerly Dopex) to introduce CLAMM Options Trading. This product allows the building of on-chain options liquidity and enables users to seamlessly trade options, earn premiums, and earn swap fees. This collaboration represents a significant leap forward in decentralized finance (DeFi), merging PancakeSwap's robust platform with Stryke (formerly Dopex)'s cutting-edge options protocol.

Overview of PancakeSwap’s CLAMM Options

PancakeSwap’s American-style CLAMM options will debut on the Arbitrum chain, offering flexibility with diverse expiry durations (1 hour to 24 hours).

• Markets: ARB/USDC, WETH/USDC, and WBTC/USDC
• Options Types: Call & Put
• Strike Prices: Based on v3 pool ticks
• Expiry Durations: 1H, 2H, 6H, 12H, and 24H
• Exercise Conditions: Exercising positions before closure to avoid in-the-money options expiring worthless. Users can choose to enable auto-exercise to skip further actions and realize profits automatically at expiry.

What are Options?

Options are derivative contracts that grant buyers the right, without obligation, to buy or sell an asset at a predetermined strike price in the future. Option buyers pay a premium for this right. If market conditions are unfavorable, option buyers can let the option expire, limiting potential losses to the premium paid. Conversely, if the market moves favorably, the option can be exercised to realize profits.

Options are generally categorized into "call" and "put" contracts. With a call option, the contract buyer acquires the right to buy the asset at a predetermined strike price. With a put option, the buyer can sell the asset at the predetermined price.

Key Terminologies

• Option Positions: Long (buying) or short (writing/selling), call or put options.
• Strike Prices: Locked-in prices for buying (call) or selling (put) the asset at the settlement date/expiry time.
• Expiry: Represents the time till the options contract is valid. Net settlement happens at expiry or on exercise.
• Premiums: The fee received by option sellers and the cost incurred by option buyers.
• American option: Options contract that allows traders to exercise the option rights at any time before and including the expiration day.
• Option Moneyness: This is determined through the relationship between the strike price and asset price. It is used to classify if a strike price is In-the-money (ITM), At-the-money (ATM), or Out-of-the-money (OTM).
• A call option is ITM if the asset price exceeds the strike price. A put option is ITM if the asset price is below the strike price. If a user has purchased an option at a strike that goes ITM, the user will earn profits (excluding cost of buying i.e. premium) by exercising the option.
• A call option is OTM if the asset price is below the strike price. A put option is OTM if the asset price exceeds the strike price. OTM strikes have no intrinsic value, so exercising doesn’t make sense.

Types of Options:

1. Call Option (Buy):

• Buyers: Gain the right to buy the asset at a predetermined strike price on a specified date, with potential profits if the price exceeds the strike.
• Sellers: Undertake the obligation to sell the asset, receiving upfront premiums but facing potential losses if the asset's price rises beyond the strike.

Example

• On February 1, 2024, Alice initiated a buy call option at a $2,000 strike price and a $200 Option Premium. After 24 hours, Ethereum rose to $2,500. Now Alice exercises her buy call option, purchasing Ethereum at the strike price of $2,000 (lower than the current market value). Her profit is $2500 - ($2000 + $200), totaling $300, making her position in the money (ITM).
• On the flip side, the seller, Bob, incurs a loss of $300 as Alice exercises her right to purchase Ethereum at the strike price (lower than the current market price), so he has to sell his Ethereum at the strike price of $2000, which is lower than the current market price marked at $2500.

Risk/Reward The trader's (Alice) potential loss from buying a call option is limited to the premium paid. Potential profit is unlimited due to the increasing option payoff and the underlying asset price until expiration.

2. Put Option (Sell):

• Buyers: Secure the right to sell the asset at a predetermined strike price, anticipating a decrease in the asset's price.
• Sellers: Accept the obligation to buy the asset, earning upfront premiums but facing potential losses if the asset's settlement price is lower than the strike price.

Example

• Alex initiates a buy put option on February 1, 2024, with a $2,500 strike price and a $250 Option Premium. On February 2, 2024, Ethereum drops to $2,000. Alex exercises his buy put option, selling Ethereum at the strike price of $2,500 (higher than the current market value). Resulting in a $250 profit, $2500 - ($2000 + $250), making his position in the money (ITM).
• On the flip side, the seller, Dave, incurs a loss of $250 as Alex exercises his right to sell his Ethereum at the strike price (higher than the current market price), so Dave has to buy Alex’s Ethereum at the strike price of $2500, which is higher than the current market price marked at $2000

Risk/Reward The potential loss on buying a put option is limited to the premium paid for the options. The maximum profit from the position is capped because the underlying price cannot drop below zero; options are a highly leveraged instrument, and even a capped upside return when buying put options allows users to maximize gains on their capital.

Decoding the CLAMM Options: A Liquidity Game-Changer

Crafted by the Stryke (formerly Dopex) team, the CLAMM options protocol introduces an efficient dual liquidity provision system for options traders (buyers) and PancakeSwap v3 pools. Here's a breakdown of how it operates:

• Liquidity Addition: Users adding liquidity to CLAMM options simultaneously contribute to the designated PancakeSwap v3 (CLAMM) pool within their chosen price range.
• Options Trading: When an options trader (buyer) initiates a position, the liquidity is extracted from the v3 pool to facilitate options selling. The user thereby becomes an options seller and receives a premium.
• Idle Liquidity Management: The unutilized liquidity resides in the PancakeSwap v3 pool, potentially earning trading fees as long as the pool price remains within the liquidity range.
• Consistent Payoff: The payoff from selling options and providing liquidity in a v3 pool mirrors the same IL or token balance, ensuring users face no increased risk compared to the conventional method of adding liquidity to v3 pools.
• Minimal Risks: Users face fewer risks, as liquidity might remain un-utilized due to lower options buying demand. Additionally, since liquidity is added to the pool in an inactive range, it might not earn any fees.

Refer to our step-by-step guide on how to add liquidity to PancakeSwap CLAMM Options.

How Can I Start Trading Options on PancakeSwap?

Refer to our step-by-step guide for participating in PancakeSwap’s Options Trading.

The Start of Something Even Bigger

This collaboration marks a significant stride forward, delivering diverse trading opportunities for users and elevating fee-earning potential for liquidity providers. Join us on this transformative journey as we redefine DeFi trading with PancakeSwap and Stryke (formerly Dopex), where each trade unfolds new possibilities and rewards.

Stack’em

The Chefs