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Allows users to close their trades before their expiration time. This will allow traders to exit any position to lock in profits or free up collateral.
For an early close, the platform will use the Black-Scholes model with the HV-as-IV value. The option's current value will be determined based on the remaining time until expiration and the updated volatility expectation.
Let's denote the Black Scholes price of an option (up or down) using trading volatility , strike, risk free rate and time to expiry. Since only the trading volatility matters in this context, we omit all other parameters.
Buffer employs a bot which sets the hvs for all the markets every 2 hours. The hv values are continuously monitored for all the markets. The values are only edited on-chain if the new values are at least 10% different from the currently set values.
For early close:
- In case of ITM the iv is chosen as 10 x the current iv
- In case of OTM the iv is chosen as 0.5 x the current iv