Zetaverse Trading Competition Guide

A guide for trading on Zeta's platform, and some tips and tricks fo the competition!

1. The Game

Timeline: 31JUL2021 10:00 UTC to 2AUG2021 10:00 UTC

Duration: 48 hours

Objective: Make as much money as you can through trading binary options

Take note: There are no second chances; once you lose your stack, its game over.

1.2 Your Weapon Of Choice

In this rendition of the trading competition, we will be using binary options.

Binary options are call options that have a final payoff of either 1, 0.5 or 0 depending on whether the spot prices are above, at or below the strike. Before they expire, they can be valued at anywhere from 0 to 1. Note that since selling a binary call is equivalent to buying a binary put, we have not listed puts on the zeta platform.

A quick example: Katniss EverGREEN is a participant in the zeta games. The current price of SOL is $28.2 and Katniss believes that it will go to $28.85 within the hour. She has $1000 PAI and there are 5 strikes available for her to trade.

  • If Katniss chooses to buy the 27.9 binary, she needs to pay $0.86 per binary and she can afford to buy ~1162 of these binary options. ($1000/$0.86). On expiry, spot is at $28.85 – Katniss was correct. The binary options will be worth $1 each and Katniss would have made $162 in profit. (1162*$1 – $1000).

  • However, if Katniss decided to buy the $28.8 binary instead, she would need to pay $0.02 per binary and she can afford to buy ~50,000 of them. ($1000/$0.02) On expiry, spot is at $28.85 – Katniss was correct. The binary options are worth $1 each and Katniss would have made $49000 in profit. (50000*$1 - $1000)

  • However, if Katniss was just slightly wrong, spot was at $28.78 – The $28.80 binary options would expire to $0 and Katniss would have lost it all. If she bought the $27.90 binary, she would have still made money because those would have still expired at $1. If spot was at exactly at strike ($28.80) – the binary options would expire to $0.50 and Katniss would be up $24000. ($0.5*50000-$1000)

In general, buying the cheaper binaries and getting them right would make you more money - however the cheaper binaries generally have a lower probability of expiring to $1.

So far, we have talked only about buying the binary options – but wait, we can sell these too. Generally selling options, especially call options create a situation of unlimited losses. However, because the binary option has an upper payoff limit at $1, selling a binary option will only create a situation where losses are limited.

  • In the above situation, if Katniss thinks that spot will be below $28.50, she can sell 1000 of the 28.50 strike binary options at $0.10. If she is correct, and the eventual spot price is at $28.30, Katniss will make $100 (1000*$0.10).

1.3 The Format Of The Games – And Some Advice

The binary options will be expiring on an hourly basis, with 5 different dynamically created strikes. That means that there will be 48 mini rounds in the games to play…

Survival is crucial. No matter how confident you are… if you bet it all and lose it – you’ll be out of the games. Glory goes to the heroes and the vanquished perish in silence.

Your tactics to survive in the games – you can buy or sell the binary options or even do a combination. Since the payoffs are constrained, combining a series of binary options can result in payoffs where your total risk is still easily defined and constrained.

At any point in time, you can sell or buy back the binary options. You do not have to wait for it to expire to $0 or $1 if you think you have already made enough on your position or if you want to cut losses.

Five guidelines

  1. Bet it all only when you are extremely certain, else losing it all means its a proper game over

  2. Manage your risk and margin exposures well, in general spot prices over the short run can be extremely random. You don't want a random move to stop you out!

  3. The cheaper binaries offer a better payout! But you are also less likely to hit them! Balance between payout and probability.

  4. There are 48 rounds, you don't have to play in every single round if you think there are no great trades or if you don't think you have an edge.

  5. Above all, have fun!

2. How To Play

  1. Click the Start Trading button, this will mint you some PAI (fake PAI) which you can use for trading. ​

  2. Initialize your options account and you’re ready to get going. ​

  3. Select the strike you want to trade, and click buy or sell. You can either choose your quantity directly or set it via selecting the leverage ratio that you want to run. Confirm your order at the bottom and your transaction will go through! Experience Solana's blazing speed. Pay special attention to the collateral requirement as well as the liquidation price. These are nifty tools to help you quickly assess the health of the account as well as the risk that you are taking on. If the liquidation price is too close, any random wick in spot could potentially wipe you out. Take note! Potential payout is the value that you’ll obtain should you be right on the trade.

4. Manage your positions and view your account risks here. While the big tab above can tell you the risks associated with a singular position. The account tab consolidates all the trades you have to report into an account health factor. When this account health factor gets to zero, the account gets liquidated.

5. On every new round, you will have to load to initialize the option strikes again

6. Don’t forget to check out your profit against everyone else’s on our live Leaderboard!

3. Formulas and Margin Calculation

Mark prices: These are calculated via the Zeta AMM pricing engine, and will be updated continuously.

Position value: This is the total amount of money your account can possibly lose at a given moment. For long positions, the mark price is used. For short positions (1 - mark price) is used.

Cost of Trades: This is the total amount of money your account has spent on its current positions. For long positions, the trade price is used. For short positions (1 - trade price) is used.

Zeta's safety margin: The difference between Zeta's mark price and the bid price (if long) or the ask price (if short). E.g. for a 26.7 strike call with bid price 0.18 and mark price 0.19 the safety margin for a long position will be (0.19 - 0.18) * qty.

Liquidation premium: A buffer that is kept in place to ensure liquidations don't cause overbankruptcy. This premium is currently kept at 5% of the total position value.

Account Health: This is calculated as (Account Balance (The amount of money in your in your wallet) + Position Value) / (Cost of Trades + Zeta's Safety Margin + Liquidation Premium). If this goes to 0% you will be liquidated!