🎚️Leverage

Leverage in Operps works differently than the traditional trading platforms. Instead of allowing users to select the leverage themselves, it is automatically determined based on the supply of Long and Short Operps tokens in their respective pools.

Leverage = (Supply of Short Operps Tokens)/(Supply of Long Operps Tokens)

The higher the premium, the more players want to hold the short Operps tokens to receive that premium every cycle, which increases the leverage.

Increase in Premium paid by LO holders attracts more SO holders

For this section, let's assume there are 100 times as many Short Operps Tokens as there are Long Operps tokens, at the time of a settlement, i.e. a leverage of 100.

How does leverage affect Put Operps payoff

For every percentage point drop in the market, Short Put Operps holders lose 1% each but Long Put Operps holders earn 100% on their investment.

LO holders gain 100% profit even when market falls only by 1%

Short Operps holders still receive the premium in this settlement, but we didn't consider that for the sake of simplicity.

How does leverage affect premium

Long Operps holders pay a pre-defined premium every settlement, which gets divided among Short Operps holders. So if Long Operps holders pay 50% as premium, Short Operps holders earn 0.5% in premium because there are 100 times as many Short Operps holders to divide that 50% premium among them.