Deribit has enhanced its derivatives offerings by introducing USDC-settled options trading for Avalanche (AVAX) and Tron (TRX). These new contracts are available to users in eligible jurisdictions and are entirely settled in USDC, aligning them with the perpetual products and other options in the same settlement currency.
Options contracts provide the buyer with the right, but not the obligation, to buy or sell an underlying instrument at a specified price before the contract's expiration. The new AVAX and TRX contracts on Deribit are cash-settled, meaning that no physical delivery of tokens is required upon expiration.
These options are available in two forms: call options and put options. A call option grants the buyer the right to purchase the underlying asset at the strike price, while a put option grants the buyer the right to sell the underlying asset at the strike price. Each AVAX options contract represents 100 AVAX, and each TRX options contract represents 10,000 TRX. These contract sizes are crucial for traders when assessing notional exposure, position sizing, and risk management.
Deribit has noted that, unlike some existing options markets such as those for SOL and XRP, deposits of AVAX or TRX tokens are not yet accepted as offset currencies. Consequently, traders can no longer use AVAX or TRX balances to offset margin requirements for these specific options, with all settlements exclusively based on USDC.
Use Cases: Hedging and Yield Strategies
The introduction of AVAX and TRX options enables a variety of derivatives strategies that are already common in other crypto options markets. One significant use case is hedging existing spot exposures. For instance, a trader holding a position in TRX could purchase a put option to hedge against potential downside risk while retaining exposure to upside price movements.
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AVAX and TRX linear options are now live on Deribit. 🚀USDC settled. Built for traders who want more altcoin optionality.
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If the market price of TRX falls below the strike price of the put option on the expiration date, the put option would compensate for losses incurred on the spot position. Due to the cash settlement of Deribit options, this protection is provided through a USDC payout rather than a token transfer.
Another applicable strategy is generating premium income through a covered call. In this approach, a trader who owns AVAX call options would sell their corresponding AVAX positions in the spot market. Both of these strategies are based on the predetermined risk profiles inherent in options contracts. Option buyers face a maximum, fixed potential loss, while option sellers earn premium income in exchange for accepting potential obligations in the market.