Foundations · 6 min read
What is a perpetual option?
A visual guide to expirationless option exposure—and why the contract mechanics matter more than the label.
An expiring option packages three familiar ideas: a nonlinear payoff, a strike, and a final date. A perpetual option keeps the first two and replaces the final date with an ongoing mechanism. That mechanism is the important part.
No expiration does not mean no cost
Removing a fixed expiration removes the familiar countdown, but it does not make optionality free. Someone who provides convex protection must still be compensated. Different designs solve that financing problem differently:
- A streaming-premium design accumulates premium as the position is held, often with sensitivity to the price path.
- An everlasting or funding-based design transfers funding between longs and shorts according to the difference between a modeled mark and the option's current payoff.
- A continuous-roll approximation repeatedly replaces conventional options to maintain a target tenor, such as roughly 30 days.
Those are related ideas, not interchangeable formulas. A result labeled “perpetual call value” is incomplete unless it also identifies the mechanism and version used to produce it.
What remains option-like?
The payoff is still nonlinear. A long call becomes more valuable as spot rises above the strike; a long put becomes more valuable as spot falls below it. Delta and gamma may still be useful, but their exact interpretation depends on how the model defines the mark and carrying mechanics.
This is where perpetual options differ sharply from perpetual futures. A future creates approximately linear exposure: each dollar of spot movement contributes about one dollar per unit. An option bends. A large favorable move can matter much more than a small one, while an unfavorable move can leave a long option with limited payoff exposure—though carrying cost can still accumulate.
The practical questions
When evaluating any perpetual-option design, ask:
- What quantity is marked to market?
- Who pays whom while the position remains open?
- How often is that payment observed or transferred?
- Does the path near the strike affect cost?
- What closes, settles, liquidates, or forces exercise?
- Which assumptions produce any displayed Greeks?
The Lab keeps these distinctions visible by versioning each mechanics model and returning a component-level explanation, not only a final number.