Everlasting Options: Perpetual Exposure and No-Arbitrage Pricing
Summary
The document introduces everlasting options as a way to maintain options exposure without repeatedly closing near-expiry contracts and opening later ones. It reviews European call and put payoffs, explains why an option can be worth more than its immediate exercise payoff before expiry, and describes how repeated rolling can incur spreads, operational effort, and execution risk. It also compares the product with perpetual futures, which use periodic funding payments to keep their price aligned with an underlying asset.
The proposed structure applies funding payments to an option’s trading price, with a no-arbitrage model relating that price to a weighted basket of conventional options expiring at successive funding times. The text sketches an arbitrage argument: if the perpetual derivative and equivalent basket were mispriced, a trader could take offsetting positions and adjust them as payments and expiries occur. The source’s displayed equations are incomplete in places, so the exact formula and assumptions cannot be fully reconstructed from the text provided. It presents a theoretical pricing framework, not empirical performance or evidence that everlasting options are liquid or widely available.
Key ideas
- A European call or put pays the positive difference between spot and strike in the appropriate direction at expiry.
- Options can have time value before expiry because the underlying price may move before settlement.
- Rolling expiring options can create repeated spread costs, execution risk, and operational burden.
- Everlasting options use funding payments to provide ongoing options exposure without scheduled expiry rolls.
- The proposed no-arbitrage framework values the perpetual contract against a basket of options expiring at successive funding times.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.