Funding Mechanism

The Funding Period is the period over which the Funding Premium is paid, where the Funding Premium is the USDC equivalent of the option price for out-of-money options (and more generally Time Value = Mark Price - Intrinsic Value). The Funding Premium refers to an amount that is continuously paid over 8 hours (assuming no price changes)

Example :

Spot Price = $100,000

1 USDC = 1 USD

Funding Period = 8 hours

BTC-USD-101000-C has a price of $500. Since the option is out-of-money (i.e. zero intrinsic value), the time value is also $500. This corresponds to a Funding Premium of 500 USDC.

If Alice buys 5 BTC-USD-101000-C. After 1 hour and if market prices are unchanged, Alice will have a Funding PnL of -5 * (500 * 1 / 8) = $312.5

Similar to Paradex Perpetual Futures, funding is continuously accrued as unrealized PnL and is realized whenever the position is updated.