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Odds & Pricing

Pricing:

Buffer uses the Black-Scholes Algorithm to derive a realistic price for each above/below contract, using the following data points:

  • Current Asset Price: price feeds are provided by the Pyth Oracle
  • Distance to Strike Price: current distance to the strike price set at the time a trade is opened
  • Distance to Strike Date: current distance to strike date set at the time a trade is opened
  • Implied Volatility: Buffer proxies current implied volatility (iv) as historical volality (hv). hv of a contract is updated for each contract on a daily basis.

Odds:

Odds for Above & Below positions can changes as the markets moves closer to maturity, and this price movement affects these prices.

An asset's price movement and time to maturity also affects the odds of reaching a certain strike price.
Hence, the value of your position will change as these odds change.

In addition to odds data changing with market conditions, prices for a above and below contract will also change based on trader activity.
As more traders buy contracts from either side of a market, prices will be adjusted in response. Once the trading window closes, risk/reward is locked in and will not change anymore.

If your position is successful when the market matures you can redeem each position token for 1 whole USDC. Once a market matures a winning contract, no matter the price is worth 1 USDC while a losing one is has no value.