Revolutionizing DeFi Options with Panoptic's 0DTE Strategies

A guide to trading same-day options with Panoptic

The world of decentralized finance (DeFi) options is evolving rapidly, and Panoptic is at the forefront of this revolution. By leveraging Uniswap V3 liquidity provider (LP) capabilities, Panoptic can create perpetual options positions. This is nothing short of pure magic! One of the most intriguing aspects of Panoptic is its ability to facilitate 0DTE strategies, which we'll explore in this blog post.

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What are 0DTEs?

0DTE (Zero Days to Expiration) options are contracts that expire on the same day they are purchased. Traders usually buy or sell these contracts in the morning, hoping to repurchase or resell them at a lower price before the day ends.

Why Trade 0DTE Options?

Theta decay, the rapid decrease in option premium as expiration approaches, is a primary reason traders opt for 0DTEs. These options offer unique trading opportunities for both buyers and sellers:

• For buyers, 0DTEs can be profitable if the market moves in the preferred direction, as they are inexpensive and gain intrinsic value quickly.

• For sellers, the goal is to sell 0DTEs at a high price and repurchase them at a lower price later in the day.

So what are some of the main 0DTE Trading Strategies?

1. Directional: If you have a strong conviction about a stock's movement, you can buy calls (bullish) or puts (bearish) – suitable for buyers.

2. Non-directional: Straddles or strangles are safer strategies for both buyers and sellers, regardless of the stock's direction.

Trading 0DTEs on Panoptic

Although Panoptions don't expire, you can adjust the "width" (r) of your Panoption to correspond with Time To Expiration (TTE). This can be shown from the formula bellow:

\(\begin{align} T_r&=\frac{2\pi}{\sigma^2}\left(\frac{\sqrt{r}-1}{\sqrt{r}-1}\right)^2\\ \text{Where }\quad &\\ r&=\sqrt{\mathsf{PriceUpper/PriceLower}},\\ \text{Which implies }\quad &\\ r_T&=\left(\frac{1+\sigma\sqrt{\frac{T_r}{2\pi}}}{1-\sigma\sqrt{\frac{T_r}{2\pi}}}\right)^2,\\ \\ \text{with $\sigma$ the volatility of the asset}& \end{align}\)

From here, we can observe that:

• Wider range → longer TTE

• More volatility → shorter TTE

Opening a 0DTE Position on Panoptic

1. Estimate the implied volatility (σ) from historical data.

2. Invert the formula for r.

3. Open a Panoption position with TTE < 1.

While we cannot guarantee that profits will always follow, the potential for large gains is present.

Remember that 0DTEs are not without risk. Tight ranges on Panoptic mean that a position can quickly accumulate premium owed by the options buyer.

Remember to trade responsibly and consider the risks involved with 0DTE (or any kind of) options.