Blendy
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  • Key Concepts
  • Participant Roles
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  • 🧩 BLENDY MODULES
    • Moon Module
      • Key Components
      • Option Strategies
      • Risk Management and Hedging
      • Examples
  • Throttle Module
    • Throttle Module Explained
    • Formulas and Calculations
    • Example
  • Liquidation Process
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On this page
  • Types of Options
  • Option Rules
  • Strike Prices and Weighting
  1. 🧩 BLENDY MODULES
  2. Moon Module

Option Strategies

PreviousKey ComponentsNextRisk Management and Hedging

Last updated 7 months ago

Types of Options

The Moon Module primarily utilizes European strip put options with 8-hour expiries. These options are re-struck at the end of each period, ensuring continuous coverage. Additionally, the module employs weekly and monthly options to maintain flexibility and adapt to varying market conditions.

Option Rules

  • Options will be weekly or monthly, with at least two active tenors.

  • A set of strikes will be used, roughly 30% - 70% Out of the Money (OTM).

  • The structure will resemble the VIX with weights of 1/strike21/strike^{2}1/strike2, so the left tail is most heavily weighted.

  • The Collateral Vault will seed the starting option basket in the nearest tenor.

  • When a new position is entered during the week, additional options are opened in the back tenor.

  • When an existing position is exited during the week, options are closed in the front tenor.

  • The goal is to keep the weighted duration stable and cause a natural rolling of the position.

  • The choice of what tenor to buy/sell can be adjusted based on the LTV and the needs of the participating parties.

Strike Prices and Weighting

Strike prices for the options range between 30% and 70% Out of the Money (OTM). This range is selected to provide a balanced approach to risk management, capturing significant price drops without incurring excessive costs. The weighting structure follows a model similar to the VIX, with heavier weights assigned to the left tail (lower strike prices) to prioritize protection against substantial declines.