Options and perpetual contracts are both derivatives whose value comes from an underlying asset.
They share the common goal of allowing traders to express a directional bias and use leverage to amplify potential gains or losses but unction through different mechanisms that carry their own set of risks.
Key Difference
The main trade-off between the two lies in time and risk structure:
When you trade options on Dream, you deal with expiration dates, and your position is affected by the amount of time left before your position expires (time decay). The closer you get to expiry, the more value your position loses if the market doesn’t move in your direction.
With perpetual contracts, there is no expiration, but you pay funding fees to keep your position open. If the price moves against you and reaches your liquidation price, your position is automatically closed, and you are liquidated.
Time Decay
Time decay also known as Theta reduces the value of your option as expiry approaches, especially for options that remain out of the money.
The further below your price level BTC trades, the faster value decays.
The further above your price level BTC trades, the slower decay becomes.
When BTC hovers near your price level, decay is neutral but accelerates closer to expiry.
Time decay accelerates as hope that your option will expire in the money fades.
Philosophy
With Dream Options, we enable leverage without liquidations.
We believe traders should focus on being directionally correct, rather than avoiding liquidation. With our UX, we’ve abstracted the complexity of options and made it simple to use leverage to express your directional bias safely and intuitively. Dream Options are designed to feel more like placing a bet or a prediction than filling out your taxes.