In the world of financial markets and trading, adapting to evolving strategies and risk management techniques is key to success. Recently, I came to know DBOE (DeFi Board Options Exchange) and unregrettably made a significant shift in my trading approach by switching from trading futures to trading DBOE options. In this blog post, I'd like to share the reasons behind this transition and why I believe it's a game-changer for me.
Better risk management for worst case scenarios
One of the primary factors that led me to make this change was the ability to tailor my risk management strategy more precisely
Capped Losses with DBOE Options
One of the standout advantages of trading DBOE options is the clearly defined risk. When buying DBOE options, my worst-case scenario is limited to the premium I pay for the option contract. This always works regardless of how many different Options positions I have. This capped loss provides a level of comfort and security that is hard to achieve with futures.
2. Unlimited Loss Potential in Futures
Conversely, when trading futures, the potential for loss is virtually unlimited. It's a sobering thought to consider that a wrong move could lead to my account being wiped out entirely, with positions auto-liquidated. The prospect of such a significant loss weighed on my decision-making.
I know there are people trading futures and relying on the exchange’s auto-liquidation as their stop loss because they can easily create a new account. However, this is only applicable for those with a single future position. As soon as they want to have multiple positions such as different expiries or different underlying markets, they will no longer be able to continue with this reckless approach.
Decent upside for the right decisions
Maximised Upside with DBOE Options
When making directional bets with DBOE options, the potential for profit is astounding.
For instance:
Consider a scenario where I buy an “at-the-money” DBOE Call Option on ETH with following parameters:
It’s at-the-money Option because ETH is also having a price of $2080 as of now.
For everyone’s knowledge, DBOE is a vertical spread of two regular Options. Therefore, this Call option E2080CNov12 will have a payoff as the difference of two regular Call Options, one at strike $2080 and another at strike $2180.
Given the current market implied volatility being around 45%, the initial premium I have to pay is $22 for one option.
At expiry, if ETH price is indeed 2180 or above this option E2080CNov12 will have a final payoff of $100.
DBOE also has a very nice and intuitive P&L graph detailing all the scenarios with regard to the underlying price on the expiry date as above. Check it out.
In this case, I stand to make a decent profit of 360% = ($100 - $22) / $22, or a winning ratio of 460% (every $1.0 for $4.6 to bring home)
I found it is very convenient to track this maximum winning ratio (MWR) as the last column on the DBOE platform.
Limited Lerverage Futures
In contrast, with futures trading, while I might have access to high leverage ratios offered by centralised exchanges, the actual return on investment can be significantly limited.
For the same market situation with ETH price of $2080, using 20x leverage, I would need to put up $2080/20 = $104 as an initial margin.
Certain exchanges might add some mark-up on top of the bare $104 above, but for simplicity we ignore it for now.
If ETH reaches $2180 as above then my profit would be $100, resulting in a 96% return.
In order to have the same return as in Options with Futures, ETH needs to move up at least $2430. Of course, the probability of it happening will be much lower.
It’s clear that the potential for substantial returns is greater with DBOE options.
Others perks with DBOE Options
Simplified Risk Factors
Perpetual futures trading often involves complexities like the Funding Rate, which can have a significant impact on the cost of holding positions. Switching to DBOE options allows me to sidestep these intricacies and focus on more straightforward risk factors.
2. Enhanced Peace of Mind with Non-Custodial DBOE Options
The non-custodial nature of DBOE is another compelling reason for my transition. Knowing that my DBOE option positions are tokenized and securely stored in my wallet provides me with a level of confidence and peace of mind that is invaluable in the world of trading
3. Appealing airdrop basing on trading volume
DBOE is having a very generous airdrop program based on trading volume. The more you trade, the bigger airdrop you will be receiving from the project. This comes as free and there is a huge possibility it will turn out to be a handsome amount of money in your portfolio once DBOE is big.
4. Exploring Advanced Strategies
Lastly, DBOE options trading opens up a world of advanced strategies that allow me to bet on volatility, irrespective of market direction. This aspect of DBOE options trading is so rich and diverse that it deserves its own dedicated discussion in a future blog post.
In conclusion, my shift from trading futures to trading DBOE options has been driven by a desire for enhanced risk management, the appeal of capped losses, the potential for substantial profits, simplified risk factors, and the comfort of non-custodial trading. While trading DBOE options may not be suitable for everyone, it aligns perfectly with my trading style and objectives. It's a decision I'm confident will lead to more successful and fulfilling trading experiences in the future.
Check it out: DBOE
Note: Article from November 2023
An effective way to prevent risks, when the ETH ETF is approaching