Trading Cutoffs
The Lyra protocol enforces trading cutoffs to ensure that the mechanism remains accurate and performant. This has some important implications for traders:
  • Traders will not be able to trade with the AMM for options with <24 hours to go expiry, including closing trades.
  • Traders will not be able to trade with the AMM for options with deltas outside the specified cutoff for a given asset, including closing trades. For example, imagine that the delta cutoff range for an asset is 15-85 delta. A trader might open a trade buying a 50 delta call, if the price of the underlying asset rises and the option becomes 90 delta, the trader will not be able to close with the Lyra AMM unless it falls back below 85 delta. Note that if an option falls outside of the delta cutoff range, and then returns to the tradeable range, the option will once again be tradeable with the Lyra AMM.


Lyra's system is built around a market-driven implied volatility value which is fed into a Black-Scholes pricing model. When implied volatility changes, the price of the option changes according to its vega. Check out our Greeks explainer for a primer on vega.
This presents an issue for the mechanism when vega approaches 0 - an increasingly large volume of trades is required to impact that price of the option. This effect becomes especially pronounced in a few scenarios:

When Time to Expiry Approaches 0

As time to expiry approaches 0, vega also approaches 0. This makes sense since when time to expiry is 0 (i.e. at expiration) the option is simply worth the intrinsic value if the option is ITM, and 0 otherwise. The _optionality _piece of its value is equal to 0, and so the option's value is unaffected by changes in implied volatility.

When The Option's Delta is Sufficiently High/Low

When an option is 100 delta, the volatility component of the option is effectively 0, since the value of the option is entirely intrinsic. Invoking the heuristic mentioned here - the delta of an option can be thought of as the rough probability that the option expires in the money. If an option is 100 delta, then the probability it expires ITM is close to 100%, which means that it's functionally equivalent to buying the underlying asset itself. If this is the case, then the optionality component of the option is worth close to 0, which again means it's relatively unaffected by moves in implied volatility.
Similar logic applies to low delta options (close to 0). They have almost no chance of being in the money, so increasing IV has a relatively small effect on the value of the option.

What you can do instead

The Lyra development team is actively working on solutions to accommodate trading in more tail-like options in the next version of the protocol. In the meantime, traders can utilize other hedging solutions if they want to close and cannot. Solutions like:
  • Trading a different strike option to create a call/put spread position and reduce risk.
  • Buying/selling the underlying asset on a spot market to hedge their delta (if their option is in the money).