It’s 3 a.m. Not that it matters. Let’s face it, you haven’t been outside in a while.
You ape into the latest NFT. 5 ETH, not that bad. Everyone on twitter is talking about them, all of them are rocking the pfp. This one has some legs, the run isn’t over yet. This is the one. Clear roadmap, actual utility, this is THE ticket.
You go to bed. You wake up. You chuckle a little, maybe a small smile.
Floor price: 1 ETH. An 80% loss. Rugged.
Like me, some of you may have been in situations like this in the not too distant past, however hard you try to forget. Or maybe not. Point being, losing money on NFTs is never fun for anyone. What if there was a way to prevent all that from happening?
Enter NFT put options. A couple months ago out.eth and I were talking about this exact situation. We wondered why no one had developed any instruments to hedge risk for NFTs. After all, the volatility alone presents a pretty clear use case for put buyers, and there was definitely enough bullish sentiment to create some put sellers. So we got to work.
P2P put options; giving users the right, but not the obligation, to sell a single asset or group of underlying assets (read: NFTs or ERC20s) at a predetermined price within a specified time frame to another user.
Let's say you punt 5 ETH into the latest 48 hour hyped up NFT collection. The risk is huge, but so is the upside. Maybe you want to reduce your risk somehow in exchange for a little upside. You could buy an OTM put option on the NFT at a strike of 3 ETH - ensuring the most you can lose is 2 ETH.
Or perhaps you aped into a collection pre-reveal and want to buy some insurance in case you get common, non-rare traits after the reveal. Just buy an ATM put option which locks in the current price, but also keeps your upside uncapped in case you do get a few sick rare traits.
It could even turn out that you want to buy an NFT because of an upcoming airdrop but aren't necessarily bullish about that particular NFT in the short term. You can hedge that risk by buying an ATM put option. For example; buy NFT, buy ATM put, claim airdrop, NFT crashes post-airdrop, exercise put contract, sell airdrop. As long as the airdrop value is greater than the premium on the put contract, you make a profit.
Put options allow you to express more complex opinions on NFT price movements than what's currently possible.
Feel free to check out an implementation at putty.finance.