Light Options

Light options are short-term, structured derivatives with a no margin and a fixed payout. They are traded peer-to-peer on our exchange, and price is determined entirely by the open market.

 

Introduction

Light options have only two potential outcomes at expiration: $0 or $100. You are simply speculating on a particular outcome to occur, or not occur, by a specific time.  The risk and reward are fixed.  Options premiums are always priced between $0 and $10.

At expiration, the condition you are speculating on can simply be true or false. For example, if you are trading Light options on the price of Bitcoin in US Dollars, the price will either be trading above the strike price (true) or below the strike price (false) at expiration. Light options will always settle at $0 if false and $10 if true.  There are two parties in an option contract, so one party will receive $10 and other will receive $0.

Predefined Risk

One key advantage of Light options is that both the risk and reward are fixed. When you enter a contract, you know up front your maximum profit and potential loss.

As an options trader, you can profit from either a true or false scenario. This is because you can buy or sell a Light option contract, depending on where you feel the market price is headed. You can also use Light options to profit from volatility using a combination of positions at different strike prices. This means that you can use Light options to forecast market ranges and breakouts without having to predict direction.

Components of Light Options

Strike price

The strike price is simply the price condition that you are speculating on. With a Light option, you are speculating if the market price will be over (true) or under (false) the strike price.  Each market may have multiple strike prices listed, and you can speculate on one or more of them.

As an example: For a strike price of $7500, the Light option becomes:  Will the price of Bitcoin settle above (true, so you buy the option) or below (false, so you sell the option) $7500.  Remember, you can speculate on either outcome.

Normally, we will list multiple strike prices for a given asset. This gives you more choices what you want to speculate on.

If the price of Bitcoin, right now, is $7498, we may offer the following strike prices:

  • $7490
  • $7495
  • $7498
  • $7500
  • $7505

You may then buy (over/true) or sell (under/false) the Light option on one or more of these strike prices. This gives you the ability to speculate on a very simple price movement, or construct complex strategies of multiple positions.

Note: You may buy and/or sell as many contracts as you like, at any of the strike prices you like. Our system will prevent you from trading with yourself.

Expiration

Light options are speculation on a condition being true or false (Market price over or under a strike price) at a given time. That time is called the Expiration. You are able to buy and sell Light options up until the listed expiration time. When the expiration time hits, all trading on that particular option is halted, and contracts are settled. If your speculation was correct, the contract payout is credited to your account.

Option Pricing

Since a Light option can only be settled at $0 or $10, the price of that option will fluctuate between $0 and $10. This price fluctuation is the result of market transactions between traders like you.

The market participants (traders like you) will make offers to buy (bid) and sell (ask) to each other at each strike price until expiration. When a buyer’s bid price and a seller’s ask price match, a contract between them is created. You can consider the current market price as a general consensus of the public’s opinion on the likelihood of the outcome. A few examples:

  • $5.0  – Consensus is that there is a 50% chance of market price being over the strike.
  • $8.0 – Consensus is that there is an 80% chance of market price being over the strike.
  • $2.0 – Consensus is that there is a 20% chance of market price being over the strike.

Note: You are free to offer to buy (bid) or sell (ask) at any price you want, but if nobody agrees to trade at your price, then you won’t have a contract.

Light Options Details

Collateral

Our binary option contracts are fully collateralized. There is no margin, no loans, and no credit. This means that all contracts can always be paid upon settlement with no default risk.

The amount you put up depends on whether you are buying or selling the option. Simply, both sides put their collateral, and the winning party collects the $10.

  • Buyer puts up the contract price
  • Seller puts up $10 – the contract price

When you trade a contract, the collateral is automatically debited from your account. You can also never lose more than the collateral you contribute to a trade.

A few examples:

  • Contract price of $5.0. Buyer puts up $5.0, Seller puts up $5.0
  • Contract price of $8.0. Buyer puts up $8.0, Seller puts up $2.0
  • Contract price of $3.0. Buyer puts on $3.0, Seller puts up $7.0

Settlement

Regardless of whether you buy or sell a Light option, if you are correct at expiration, your account will be credited $10 per contract.

Peer-to-Peer and Light.CX’s Role

 

Light.CX is an exchange that provides an order-matching service. This means that we do not trade against our customers, and do not take a position in any derivatives. Our role is to match the buyer and seller of Light options. Our job is to ensure that transactions are settled fairly and accurately. It doesn’t matter to us who wins and loses as we make the exact same fee either way.

Your role is that of a market participant. With no middle-men or brokers to get in the way, you’re able to interact directly with the market. You will be trading against other members of the public, and are free to place or cancel any offers that you like.