Binance recently launched a product called Range Bound among its wealth management products, the link is as follows

 https://www.binance.com/en/rangebound（English）

Product Entry

Product Revenue

Range Bound, this product means that the investors choose a date + an interval for wealth management. If the price does not jump out of range, the investors will get the corresponding income (the APR in the above picture is the annualized return). But once the price touch up or down point at any time, the product will be stopped immediately, and the investors' account will have a certain small losses (generally around 1-3%, depending on the length of time and the price width)

It supports both methods of stable coin and underlying coin (that is, the USD basis and crypto basis mentioned by options investors, the USD basis requires a longer expiration time, mainly based on liquidity consideration)

Compared with traditional wealth management and options, Range Bound has the following advantages:

1 (Key point) With the traditional options structure, the risk of the seller is unlimited. Especially for rookie options sellers, it is easy to oversell while shorting the volatility and lead to liquidation when encountering extreme market conditions. However, Range Bound makes the unlimited risk of the seller convert into limited risk of the buyer.

2 Compared with the Dual Investment, the Range Bound users will not cause short term losses due to selling the underlying asset too early. For example, during an extreme unilateral market condition, the price suddenly rises by 50% in half a month. The Dual Investment would convert investors’ coins into USD, causing the investors to miss large potential gains. On the other hand, the loss of the Range Bound investors is very limited, and it will not change whether the investors are a currency standard or a USD standard.

3 The Range Bound supports stable coins and BTC ETH (users can directly choose U standard or currency based options to short volatility), and investors will not change their overall position distribution when buying the Range Bound, which is safer than the Dual Investment. To avoid being forced to switch between USD and coin in a unilateral market, selling or buying too early. Compared with the Dual Investment, the Range Bound can take on more user positions.

4 The Range Bound belongs to high level wealth management in the traditional financial market, and the design of similar barrier options such as snowballs in the traditional market is relatively complicated. The Range Bound is designed based on DNT and support stable coins and underlying currencies, which is more flexible and convenient. Short, medium and long cycles can be selected according to the needs of the investors.

5 The income of the Range Bound is higher than the Dual Investment. As shown in the figures, as long as BTC price does not exceed 31,500, the annualized return of the Range Bound would be 30% higher than Dual Investment (of course, we should take the losing risk of Range Bound into consideration)

Dual Investment

Range Bound

6 The Range Bound can make investors pay more attention to the amplitude and fluctuation, rather than only the price. It can better break away from the idea of ​​​​guessing the market rising or falling, improving investors' trading thinking.

To be fair, Range Bound is not a perfect product, and has the following shortcomings

1 For the investors, it is necessary to make a certain judgment on the market (because if the judgment is wrong, there will be a risk of a slight retracement of the principal ranging from 0.5% to 2%. Unlike the Dual Investment, One can comfort oneself by reducing or increasing underlying asset). The Range Bound is close to the R3 level products of the stock market, that is, there are small fluctuations, no large retracement, and no explosive growth in earnings. After all, there are always several big market touches the up or down point every year.

2 The income of the Range Bound has a greater relationship with market fluctuations, so when buying in a bear market, it will also suffer losses when it encounters a sharp drop.

3 At present, the Range Bound has not developed the options of ultra-long term and ultra-wide, and I believe it will be improved in the future.

Finally, let's take a look at the underlying design of the Range Bound



The Range Bound is essentially a kind of exotic option, but it is a relatively simple type. It is mainly generated based on the optimization of DNT options. Let's briefly introduce DNT options



DNT stands for "Double No Touch" In DNT options, investors need to set two barrier prices, an upper barrier and a lower barrier. If the price of the underlying asset has not touched the price range between these two barriers when the options expires, the option will be automatically exercised when the option expires, and investors will obtain fixed income; if the price of the underlying asset has touched If the price range between these two barriers is exceeded, the option will be invalidated automatically, and the investor will lose the premium paid when buying the option. (The amount of loss that the Range Bound was touched)

 

DNT is a relatively well understood exotic option, because the strategy looks like a short volatility investor + stop loss operation (while the crypto investment market lacks suitable short volatility products) double sell when the price breaks through When the price is close, the loss caused by the immediate stop loss (actually manifested as the loss of premium), but this series of operations is packaged into a buyer's product, and the loss is locked in, so as not to bear greater risks. Of course, as for the underlying design of this option, it is more complicated, we will not introduce it in detail, and the requirements for the designer's strategy + execution ability are relatively high. Because if the underlying optimization is unfavorable, the cost of the option will be too high (the user loss is too large after the touch, and the interval treasure is locked at around 2%. I believe that investors who have been options sellers know that this ratio is quite stable), Therefore, it is best to avoid small CEX for such products, otherwise, in extreme market conditions, the CEX may have the risk of Rug pull.

Article was written by Sober（❤️Follow me, focus on #Options ）