Two ways of betting on a price without simply holding the asset. Options, live on venues like Derive, and perpetuals, the specialty of Hyperliquid. Both look like free money exactly until you understand what is being sold.
What an option is
An option is the right, but not the obligation, to buy or sell something at a price fixed in advance, before a given date.
The ten-year-old example
The vocabulary fits in four words:
- A call is the right to buy. A put is the right to sell.
- The strike is the price fixed in advance (the bike's 100 euros).
- The premium is what you pay for the right (the 5 euros).
- The expiry is the date the right disappears.
The two sides of the trade are nothing alike
- The buyer pays the premium. Maximum loss: the premium, nothing more. Maximum gain: potentially huge.
- The seller pockets the premium immediately. Maximum gain: the premium, nothing more. Maximum loss: potentially huge.
Selling options is collecting a regular rent in exchange for a rare but massive risk. It looks like stable yield for months, until the day the market moves violently. Know this before entering, because most products promising yield through options are option sellers that do not say so.
The covered call, the product sold to you as yield
You hold ETH. You sell someone the right to buy it from you at 4,000. You pocket the premium immediately. If ETH stays under 4,000, you keep everything, premium included, and it looks like magic yield. If ETH runs to 5,000, you are forced to sell at 4,000 and you watch the 1,000 of upside go to the buyer.
That is a covered call, the most common strategy inside DeFi yield vaults. It is not yield, it is the sale of your upside. Not bad in itself, but it should be called by its name.
What prices an option: implied volatility
What determines an option's price is not mostly the current price, it is the size of the moves the market expects. That is implied volatility. Nervous market: expensive options, fat rents for sellers. Sleepy market: cheap options, and yield strategies earn almost nothing while keeping the same catastrophic tail. That is the classic trap.
Derive, formerly Lyra, is the main on-chain options venue, with over $20B of volume traded. You can trade options directly, LP to the platform for a share of fees, or use automated vaults that sell covered calls for you. Either way, an option has two coordinates nothing else in this course has: a strike and an expiry. The risk reads as a distance to those two numbers, and a bought option you forget to exercise expires worthless, exactly like a Pendle YT.
Perps: leverage and margin
A perp, or perpetual contract, is a bet on a price, with no end date and without ever owning the asset. Long is up, short is down. You post $100 of margin and open a $1,000 position: that is 10x leverage. The price moves 1%, your result moves 10%.
10x leverage: price moves 1% -> your P&L moves 10% price drops 10% -> your margin is gone: liquidation
Two margin modes: isolated, where a position can only consume the margin you allocated to it, and cross, where your whole account is the cushion, so one position can take everything down.
The funding rate, the invisible rent
With no expiry, something must keep the contract price glued to the real price. That is the funding rate: every hour, the majority side pays the minority side. If everyone is long, longs pay shorts.
Not a detail
Two last words. The limit order: an instruction like "buy if it reaches 3,000" that sleeps until triggered, which is why order-fill alerts exist. And the mark price: the reference price used for liquidations, computed across several sources so a wick on a single venue does not liquidate everyone.
Three thermometers, one subject
A closing note that ties three chapters together. The funding rate of perps, the implied APY of Pendle and the implied volatility of options are three different ways of making the market say the same thing: what it costs today to hold something uncertain tomorrow.