Key differences between Perpetual and Dated Options

A Perpetual Option inherits many of the traditional Dated Option properties but fits it into the simpler and more flexible perpetual framework.

As a rough comparison, Perpetual Option can be thought of as Dated Option with a time to expiry equal to its funding period. This means that Paradex perpetual options prices are roughly close to prices of Dated Options expiring in 24 hours. Given the timing flexibility, the prices are not exactly equal (perpetual options have a different pricing formula).

The main difference is that Perpetual Options do not have a Time Decay. Unlike Dated Options which price is negatively impacted by the passage of time (option becomes cheaper as it gets close to expiry, if spot price and IV are not changing), perpetual options do not have an expiry and therefore their price is not affected by time.

Instead, the holder of a Perpetual Option pays for this perpetual exposure through funding. Funding replaces time decay in the perpetual framework.

A key difference here is that in a dated option, you pay the time premium upfront vs in a perpetual option you pay it over the funding period (in Paradex’s case it’s paid continuously)

The Perpetual Option can be effectively as an intraday dated option with automatic adjustment/rolling to maintain a constant time-to-expiry.