Perp Protect on Bybit is a strategic risk management tool tailored for Perpetual contract trading, catering to both long and short positions. It operates by automatically acquiring Options based on intelligent recommendations, offering traders a valuable layer of protection against potential risks associated with their Perpetual contract positions.

Key Features

• Intelligent Mechanism: Perp Protect utilizes a sophisticated algorithm, evaluating factors like leverage, initial margin, and the current market asset price to deliver intelligent recommendations. 

 

• Protected Contracts: Currently, Perp Protect extends its protective coverage to the most popular crypto contracts, including BTCUSDT, ETHUSDT, BTC-PERP, and ETH-PERP Perpetual contracts. 

 

• Cost-Effective: Traders can obtain protection for their positions at a relatively low cost compared to potential losses.

 

• Exclusive for Unified Trading Account (UTA) Users: Perp Protect is currently exclusively available to UTA users utilizing the Cross Margin mode. 

Perpetual Protect is ideal for:

Inexperienced Perpetual Traders: Use Perpetual Protect to hedge risks and gain confidence in your trading.

 

Low Leverage, Long-Term Holders: Safeguard your long-term positions with Perpetual Protect when using low leverage.

 

Large Position Holders: Manage risks for substantial contract positions with Perpetual Protect.

 

Anticipating Market Volatility: Use Perpetual Protect for risk hedging when you anticipate market changes without a clear direction.

How Does It Work?

 

In simple terms, you establish a protective strategy by paying a premium to acquire USDC Options recommended by our intelligent system. 

 

For a Long position, a Perp Protect is achieved by buying a Put Option while for a Short position, you will be buying a Call Option, both at a predetermined price and date in the same quantity as your perpetual position. 

 

At compensation time (expiry date), you have the opportunity to receive compensation (payoff) through the exercise of the Option if the trigger condition is met. 

 

Here are two (2) possible scenarios for each position at compensation time:

 

1. Trigger condition not met: The Option will not be exercised and no compensation will be received. This means that the market is currently moving in a favorable direction for your perpetual position. Assuming the perpetual position is at profit upon closure, the maximum loss (ignore fees) will be the cost to acquire the Perp Protect (Option Premium).

 

2. Trigger condition met: The Option will be exercised, and you will automatically receive compensation in your Unified Trading Account. This helps you reduce your overall losses incurred from a Perpetual position when the market moves against you.

 

Notes:

— Market conditions can change rapidly. The cost might slightly differ from the estimate provided.

 

— The Perp Protect does not prevent your Perpetual positions from liquidation but instead allows you to receive compensation to reduce the overall losses for your portfolio if the trigger condition is met. The liquidation process for your Perpetual position will still adhere to standard procedures. 

 

— Options purchased as part of Perp Protect will not be automatically settled or closed if your Perpetual position has been closed or liquidated before the compensation time. Therefore, there is a risk that you may not receive any compensation from Perp Protect if the trigger condition is not met at compensation time, even if the position is closed at a loss. 

 

— If you increase or decrease your position size after the Perp Protect for your position is purchased, the coverage for the Perp Protect will still be based on the initial coverage purchased. You will not be able to increase or decrease the coverage of your position directly but you can manually manage the option position from the Option Trading page.

 

— For more details on how an Option works, please refer to Introduction to Bybit Options.

Compensation Calculation

 

The compensation is determined by the difference between the settlement price at compensation time and the strike price. The settlement price is calculated using the Average Index Price 30 minutes before the compensation time of the underlying assets.

Below is the formula for calculating compensation:

 

For Perp Protect (Long): 

 

Your Profits/Losses = Max { 0,  (Put Option Strike Price - Settlement Price of Underlying Assets)} × Position Size of Purchased Put Option - Put Option Premium

• Compensation Amount = Max { 0,  (Put Option Strike Price - Settlement Price of Underlying Assets)} × Position Size of Purchased Put Option 
• Option Premium = Cost (Perp Protect) = Market Price of the Purchased Put Option × Position Size of Purchased Put Option 

For Perp Protect (Short):

Your Profits/Losses = Max { 0,  (Settlement Price of Underlying Assets - Call Option Strike Price)} × Position Size of Purchased Call Option - Call Option Premium

• Compensation Amount = Max { 0,  (Settlement Price of Underlying Assets - Call Option Strike Price)} × Position Size of Purchased Call Option
• Option Premium = Cost (Perp Protect) = Market Price of the Purchased Call Option × Position Size of Purchased Call Option 

Example 1

Suppose Trader A holds the following Perpetual contract position:

 

Contract Type: BTCUSDC Perpetual Contract

Direction: Long

Leverage: 50x

Position Size: 1 BTC

Average Entry Price: 29,500 USDC

Current Market Price: 31,000 USDC

 

Trader A acquired a long Perp Protect by purchasing Put Options with a 24-hour coverage period, starting on Sep 1, 2023, 4PM UTC. The specific parameters of the purchased order are as follows:

 

Trigger Condition: Compensation will be triggered if the BTC price falls below 30,000 USDC.

Cost (Perpetual Protect): 60 USDC

 

Note: We assume a fixed conversion rate of 1:1:1 for USDT, USDC, and USD.

On Sep 2, 2023, 4 PM UTC, the following scenarios may occur (without considering trading or funding fees):

 

Example 2

Suppose Trader B holds a long BTCUSDT Perpetual contract with an entry price of 29,500 USDT. Assuming his current UTA MMR is at 70%.

 

To safeguard against market downturns, the trader acquired long Perp Protect and purchased a Put Option with a strike price of 30,000 USDT.

 

Market Downturn

The market price of BTC experienced a downturn, causing the MMR to reach 100% and the trader's Perpetual contract has been liquidated. However, the acquired Put Options from Perp Protect remained valid as it has not expired yet.

 

Options Progression

Over time, the expiration date approached and ultimately, the settlement price for BTC was determined to be 30,500 USDT.

 

Trading Performance

• The trader's Perpetual contract position indeed gets liquidated, resulting in losses.
• The active Options provide no compensation because the settlement price (30,500 USDT) exceeds the strike price (30,000 USDT).

Therefore, in this case, the trader experiences a loss on the Perpetual contract position and does not receive compensation from the Options contract due to the higher settlement price at compensation time. The total loss for the users includes the losses from the Perpetual position and also the premium paid. 

Example 3

Using the scenario from Example 2, let's assume that currently Trader B has not been liquidated; instead, his Take Profit order is triggered and his position is closed with a profit. However, the option purchased through Perp Protect remains valid as the compensation time has yet to be reached. 

 

Right after he closed his position, the market experienced an immediate downturn, and ultimately, the settlement price for BTC was determined to be 29,000 USDT at compensation time. 

 

Trading Performance

• The trader's Perpetual contract position closed in profit. 
• The active Options provide compensation because the settlement price (29,000 USDT) is below the strike price (30,000 USDT).

 

Therefore, in this case, the total profit for the users includes the profit from the Perpetual position and also the compensation received from Perp Protect, minus any premium paid. 

Differences Between Stop Loss, Call/Put Options, and Non-Liquidating Perpetual Contracts

 

Stop Loss: When a stop loss is triggered, the position will be automatically closed. In contrast, Perp Protect compensates for certain trading losses when the market price of the underlying asset moves against your expectations and the trigger conditions are met.

 

Call/Put Options: Perp Protect is a protective strategy that recommends Call or Put Options intelligently. This eliminates the need to manually select Options from an Option Chain. You can also independently choose a Call or Put Options for risk management from the Options trading page.

 

Structured Products in Perpetual Contracts Without Liquidation: It's important to note that Perp Protect doesn't prevent the liquidation of your Perpetual contract positions, and the liquidation process will still adhere to standard procedures. However, if the settlement price meets the trigger condition at the compensation time, you can receive compensation to reduce your overall losses for your portfolio.