we then pay the mark price to double our position in all of these, so we again have .5 4000-strike puts expiring at the next expiry, .25 4000-strike puts expiring at the expiry after that, and so on
4/
Conversation
resetting options present two problems here.
let's say the last strike was 4000, but the new strike would be 3500
we currently have .25 4000 strike puts expiring at the next expiry, .125 expiring at the expiry after that, and so on
5/
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1
(1) the current mark price reflects the price of the basket of 4000-strike puts, not the price of a basket of 3000-strike puts.
how much do we need to pay to put on a basket of 3000-strike puts? it's not clear
6/
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(2) we want to have our entire everlasting option have strike 3500 after we pay funding, but we have .25 4000-strike puts expiring at the next expo in our equivalent portfolio, which our pricing model will somehow have to account for
7/
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all of this is pretty confusing. it's possible we can get around it by constructing a type of exotic option with resetting strikes, but i'm not entirely sure what it would look like
8/
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the one i AM sure of is the EMA-strike Asian everlasting option, where the strike price is the exponential moving average of the price of ETH with a half-life of e.g. a week
these asian options *can* be priced (although it's hard), so all the funding fee math works out fine
9/
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i think there are ways to make this better by picking different priceable exotic payoff structures
and one of them may even give you the effect of the resetting option
it's possible i'm missing something really obvious here
if you have the answer... let me know
10/10
1
So, I *think* this works:
1) funding payments once/day
2) funding = current px - intrinsic value
3) expires once/day
4) each day, the strike price is determined at the start (-$500 from index)
5) the actual market px of this will be complicated but I think it works?
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14
this isn't actually any worse than normal everlasting options; already it's the case that a $2k strike put expiring tomorrow is a totally different product from a $2k strike put expiring today
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9
that's true, but the one feature a fixed-strike everlasting option has is that we know exactly how much funding we have to pay to turn yesterday's strike into today's: it's mark-payoff
because mark-payoff is the time value of all the options expiring after this expo
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3
yup, you def lose that interpretation with resetting strikes