Perp Protect helps manage risk in Perpetual Contract trading by providing an additional layer of protection through Options. This article explains how it works and how to get started with it.

1. What Is Perp Protect

2. How Perp Protect Works

3. Compensation Calculation

4. Differences Between Stop Loss, Call/Put Options, and Perp Protect

5. How to Get Started With Perp Protect

What Is Perp Protect

Perp Protect on Bybit is a risk management tool designed for Perpetual Contract trading, supporting both long and short positions. It automatically acquires Options based on intelligent recommendations, providing an added layer of protection against potential risks in Perpetual Contract positions.

How Perp Protect Works

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

For a long position, Perp Protect works by buying Put Options, while for a short position, it works by buying Call Options. These Options have a predetermined strike price and expiration date, and match the quantity of your Perpetual position.

At compensation time (expiry), you may receive compensation (payout) by exercising the Options if the trigger condition is met.

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

1. Trigger condition not met: The Options will not be exercised, and no compensation will be received. This generally indicates that market conditions are favorable for your Perpetual position at compensation time. Assuming your Perpetual position is closed at a profit, your maximum loss (excluding fees) will be the cost of acquiring Perp Protect (Options premium).

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

Notes:

— Market conditions can change rapidly, and the actual cost may differ slightly from the estimated amount.

— Settlement of Options acquired through Perp Protect does not affect your Perpetual position. You must manage or close the Perpetual Contract separately.

— Perp Protect does not prevent liquidation of your Perpetual position. It allows you to receive compensation to help offset losses if the trigger condition is met. The liquidation process for your Perpetual position still follows standard procedures.

— Options purchased as part of Perp Protect will not be automatically settled or closed if your Perpetual position is closed or liquidated before compensation time. As a result, you may not receive any compensation if the trigger condition is not met at compensation time, even if your position was closed at a loss.

— If you increase or decrease your position size after purchasing Perp Protect, the coverage remains based on the initial amount. You cannot adjust the coverage directly, but you can manage your Options position via the Options trading page.

— For more details on how Options work, 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 based on the average index price during the 30 minutes prior to the compensation time of the underlying asset.

Formulas:

For Perp Protect (long):

Profits/losses = Max {0, (Strike price of Put Options − Settlement price of underlying assets)} × Position size of Put Options – Put Options premium

1. Compensation amount = Max {0, (Strike price of Put Options − Settlement price of underlying assets)} × Position size of Put Options
2. Options premium = Cost (Perp Protect) = Market price of Put Options × Position size of Put Options

For Perp Protect (short):

Profits/losses = Max {0, (Settlement price of underlying assets − Strike price of Call Options)} × Position size of Call Options – Call Options premium

1. Compensation amount = Max {0, (Settlement price of underlying assets − Strike price of Call Options)} × Position size of Call Options
2. Options premium = Cost (Perp Protect) = Market price of Call Options × Position size of Call Options

Example 1

Suppose Trader A holds the following Perpetual position:

1. Contract type: BTCUSDT Perpetual Contract
2. Direction: Long
3. Leverage: 50x
4. Position size: 1 BTC
5. Average entry price: 29,500 USDT
6. Current market price: 31,000 USDT

Trader A purchases Perp Protect for a long position by buying Put Options with a 24-hour coverage period, starting from Sep 1, 2023, 4PM UTC. The order details are as follows:

1. Trigger condition: Compensation will be triggered if the BTC price falls below 30,000 USDT.
2. Cost (Perp Protect): 60 USDT

Note: A fixed conversion rate of 1:1 is assumed for USDT and USD.

On Sep 2, 2023, 4PM UTC (compensation time), the following scenarios may occur (excluding trading and funding fees):

Example 2

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

To safeguard against market downturns, the trader purchases Perp Protect for the long position by buying Put Options with a strike price of 30,000 USDT.

Market downturn

The market price of BTC declines, causing the MMR to reach 100%, and the trader's Perpetual position is liquidated. However, the Put Options acquired through Perp Protect remain valid as the compensation time has not yet been reached.

Options progression

As time passes, the compensation time approaches. The settlement price of BTC is ultimately 30,500 USDT.

Trading performance

1. The trader's Perpetual position is liquidated, resulting in losses.
2. The Options provide no compensation because the settlement price (30,500 USDT) exceeds the strike price (30,000 USDT).

Result

In this scenario, the trader incurs a loss on the Perpetual position and does not receive any compensation from the Options due to the higher settlement price at compensation time. The total loss includes both the loss from the Perpetual position and the premium paid for Perp Protect.

Example 3

Using the scenario from Example 2, assume that Trader B is not liquidated. Instead, the trader's Take Profit order is triggered, and the position is closed at a profit. However, the Options acquired through Perp Protect remain valid as the compensation time has not yet been reached.

After the position is closed, the market experiences a sharp downturn. At compensation time, the settlement price of BTC is 29,000 USDT.

Trading performance

1. The trader's Perpetual position is closed at a profit.
2. The Options provide compensation because the settlement price (29,000 USDT) is below the strike price (30,000 USDT).

Result

In this scenario, the trader's total profit includes both the profit from the Perpetual position and the compensation received from Perp Protect, minus the premium paid.

Differences Between Stop Loss, Call/Put Options, and Perp Protect

Stop loss

When a stop loss is triggered, the position will be automatically closed. In contrast, Perp Protect provides compensation for certain trading losses when the market price of the underlying asset moves against your expectations and the trigger condition is met.

Call/Put Options

Perp Protect is a protective strategy that intelligently recommends Call or Put Options, eliminating the need to manually select Options from the Options Chain. You can also independently select Call or Put Options for risk management via the Options trading page.

Perp Protect

Perp Protect does not prevent the liquidation of your Perpetual positions, and the liquidation process still follows standard procedures. However, if the trigger condition is met at compensation time, you will receive compensation to help reduce your overall losses.

How to Get Started With Perp Protect

Perp Protect is available on both the Bybit App and the Bybit website.

Before purchasing a Perp Protect order, please note the following:

1. Perp Protect currently provides coverage for the following pairs:
2. USDT Perpetual pairs: BTCUSDT, ETHUSDT, XRPUSDT, SOLUSDT, DOGUSDT, MNTUSDT
3. USDC Perpetual pairs: BTCUSDC, ETHUSDC, XRPUSDC, SOLUSDC, DOGUSDC, MNTUSDC
4. Perp Protect is available only to users who use the Unified Trading Account (UTA) in Cross Margin mode.
5. Perp Protect is not a risk-free product. The liquidation process for your Perpetual positions will still follow standard procedures. Please ensure that you fully understand the product before purchasing.

Here's a step-by-step guide to purchasing your first Perp Protect order.

Step 1: Go to the Positions tab and tap the shield icon under an active Perpetual Contract to access Perp Protect.

Step 2: The system will provide intelligent recommendations for a Perp Protect product based on your current position, including leverage, initial margin, and the current market price of the asset.

1. To adjust the settings, tap Protection range to set a new compensation date and protection range.
2. Once you have confirmed the adjustments, tap Buy to proceed.

Step 3: An Important Notice pop-up window will appear. Read the information carefully and tap Got It.

Review the Perp Protect order details, then tap Confirm.

Step 4: Once your Perp Protect is successfully purchased, a green shield icon will appear next to the associated Perpetual position, and additional details will be displayed in the Perp Protect column.

To view more details, tap the green shield next to the relevant Perpetual position, or go directly to the Perp Protect Options contract.