Lyra — How to Trade Options on Ethereum? Explanation and Guidelines
What is Lyra?
Lyra is the most comprehensive Ethereum-based decentralized crypto options trading platform. Lyra blends the best of traditional options market making with crypto’s two most important qualities, scalability and composability. Lyra’s risk measurement and hedging is accomplished by running computationally complex algorithms on a regular basis. Lyra has been able to introduce advanced hedging mechanisms on-chain for the benefit of both traders and LPs thanks to L2.
With the use of Black Scholes pricing algorithm, which determines prices for all listed options, results in efficient pricing for traders and consistent returns for Liquidity Providers. Lyra’s AMM actively hedges the delta risk suffered by LPs. The risk of Vega (volatility) is quantifiable and is at the heart of its cost structure, allowing it to incentivise risk-reducing transactions.
European calls and puts will be supported by V1 from Lyra with automatic cash settlement on expiration. Traders can both purchase options and sell options. In future, Lyra will be able to offer sophisticated positions which combine both spot and option trading, spreads, straddles, strangles and many more.
Overview and Guidelines on How to Use Lyra
Application: app.lyra.finance
🟡 Understanding the User Interface
After visiting the Application, the landing page consists of 4 main parts which includes,
- Navigation Bar: Consists of several tabs including trade, portfolio, day / night mode, connect wallet, wallet information etc.
- Available Markets: This window shows the currently supported and available markets for options trading in the Lyra platform.
- Market Information: This windows shows the selected markets’ value, time frames and allow users to select from various options available (Buy, Sell, Call, Put).
- Selected Option Details: This section shows the users’ selected option details. If the user is satisfied with the selection then clicking on the button Buy or Sell (changed according to the users’ selection) will open a position.
🟡 How to Connect a Wallet on Lyra Application?
- Step 1: Visit app.lyra.finance
- Step 2: Click on ‘Connect Wallet’
- Step 3: Select a Wallet of your choice (Metamask recommended)
- Step 4: Authorize by entering the Metamask password
On the first time trying to access the Lyra application. It will ask you to change network to Optimistic Kovan;
- Step 5: Hit ‘Dismiss’ and Click on ‘Switch to Optimism’
- Step 6: Click ‘Approve’ and ‘Change Network’
By following these steps you can connect a wallet to the Lyra application.
🟡 How to Open a Position on Lyra Application?
- Step 1: Connect Wallet to the Lyra application and make sure you are on the ‘Trade’ tab.
- Step 2: Select the Market you would like the open the position on. Lyra platform currently support 5 markets, BTC, ETH, Chainlink, Aave and Uniswap.
You can select the time frames to view the chart and understand how the price changed during the past 1 Hour, 24 Hours, 1 Week, 1 Month or 1 Year.
- Step 3: Select the option according to your preference. Lyra currently offers 4 options, Buy, Sell, Call and Put.
- Step 4: Click on your desired price
- Step 5: Enter the ‘Amount’
The line graph shows the PNL depending on the price.
- Step 6: Click ‘Buy’ or ‘Sell’ (Depending on your choice)
- Step 7: Click ‘Confirm’ and wait for the confirmation
OR
- Step 4: Click the down arrow near the price and click on ‘Details’
This will show you more advanced details about the position which includes trade expiry date, trade closing date and remaining time to close the position etc.
- Step 5: Enter the ‘Amount’
- Step 6: Click ‘Buy’ or ‘Sell’ (Depending on your choice)
- Step 7: Click ‘Confirm’ and wait for the confirmation
Note: If a market is being used for the first time, you will have to approve it in your wallet by clicking ‘Approve’ and paying a small fee. Only after paying the approval fee, the options will be available.
🟡 Manage Positions Using Portfolio on Lyra Application
1: Long Position
- Step 1: Click ‘Portfolio’
This window shows open positions, recent transactions and available wallet balances.
- Step 2: Click on an open long position
To add more to the position, make sure ‘Buy To Open’ is selected
- Step 3: Enter amount
- Step 4: Click ‘Buy’
- Step 5: Click ‘Confirm’ and wait for the confirmation
To close the position, make sure ‘Sell To Close’ is selected
- Step 3: Enter amount
- Step 4: Click ‘Sell’
- Step 5: Click ‘Confirm’ and wait for the confirmation
OR
- Step 2: Click on ‘Close’ in an open long position
- Step 3: Enter amount
- Step 4: Click ‘Sell’
- Step 5: Click ‘Confirm’ and wait for the confirmation
2: Short Position
- Step 1: Click ‘Portfolio’
This window shows open positions, recent transactions and available wallet balances.
- Step 2: Click on an open short position
To add more to the position, make sure ‘Sell To Open’ is selected
- Step 3: Enter amount
- Step 4: Click ‘Sell’
- Step 5: Click ‘Confirm’ and wait for the confirmation
To close the position, make sure ‘Buy To Close’ is selected
- Step 3: Enter amount
- Step 4: Click ‘Buy’
- Step 5: Click ‘Confirm’ and wait for the confirmation
OR
- Step 2: Click on ‘Close’ in an open short position
- Step 3: Enter amount
- Step 4: Click ‘Buy’
- Step 5: Click ‘Confirm’ and wait for the confirmation
🟡 Swap Tokens Using Portfolio on Lyra Application
- Step 1: Click ‘Portfolio’
- Step 2: Under balances section Click ‘Swap’ on the token you want to swap
- Step 3: Select the you want to swap in to from the dropdown list
- Step 4: Enter the amount of tokens you want to swap
- Step 5: Click ‘Swap’
- Step 6: Click ‘Confirm’ and wait for the confirmation
🟡 View Transactions Using Portfolio on Lyra Application
- Step 1: Click ‘Portfolio’
- Step 2: Click ‘Transactions’
- Step 3: Click on a Transaction to View it on Explorer
🟡 Types of Options and Other Features Provided by Lyra
There are 4 types options available in the Lyra platform, Click Here for a more in depth explanation on the available options.
- Buy Call (Long Call)
- Can be used if you think the market moves up within a time period
- When you own a call your upside is unlimited and your downside is capped at the price you paid for the call.
- Suitable for assests which are bullish and less volatile.
- Buy Put (Long Put)
- Can be used if you think the market is moving down within a time period
- If the asset goes to zero, you make the difference between the strike and zero, minus the premium you paid.
- Upward price is capped at the price you paid for the put
- Sell Call (Short Call) — Covered Call
- Suitable to use if you think an asset is going up, is going to trend sideways, or make a small correction in price.
- The maximum profit occurs when the price of the asset rises to the strike price on expiration.
- Sell Put (Short Put)
- Can be used if you think an asset is going up, staying where it is, or only going down a small amount.
- Max profit is the premium received for the put. Max loss is the difference between the strike price and zero, minus the premium received for the put
The Greeks helps in measuring the sensitivity of an option’s price to changes in the input parameters. In Lyra, there are 5 main greeks used to display the price change.
- Delta is the option’s price sensitivity to price changes in the underlying asset.
- Vega is the option’s price sensitivity to changes in the implied volatility of the asset.
- Gamma is the rate of change of an option’s delta for a $1 move in the underlying asset.
- Theta of an option measures how much value it will lose as a result of the passage of time.
- RHO is the rate at which the price of an option changes relative to the risk-free interest rate.
Click Here for a more in-depth explanation on the Greeks.
Conclusion
Lyra is an automated market maker for trading options on Ethereum. Which consists of game changing features and components to provide users with easier options trading capabilities. Lyra provides solutions to major issues such as, Extreme Risks, Impermanent Losses and Low Liquidity. Lyrais backed by a strong group of members who are working hard to make the project a success. According to the roadmap, the mainnet of the Lyra project is planned to be launched in the Q3 of 2021.
For more Information about Lyra:
Author Details:
Twitter Username: @UGoonasekera
Discord Username: Umesh G#1547