GM Solana-fam! In this thread I aim to explain the mechanics of Price Lock, how to use it, some possible trading strategies, and why this is bullish for both Tensor and the $SOL NFT space.

Purchasing a Price Lock - Going LONG

On this side of the market, we have the ‘takers’, who are purchasing the ‘option’ to either buy / sell at the price lock, within the 7 day period.

The price lock in this instance, is some price above the current floor price. You purchase the price lock, and pay a fee of at least 3.5% immediately, this is essentially the premium you pay to the price lock seller, and in return you now have the ‘option’ to purchase the NFT at your price lock at any time during the 7 days.

Should the floor price of the NFT move above your price lock, you can then exercise your price lock, either purchasing the NFT at the price lock value, or insta-selling it into the floor price, and taking the spread (Floor Price - Price Lock) as a profit.

Should the floor price of the NFT move below your price lock at the end of the 7 days, you only lose the initial fee of at least 3.5%.

Remember, as you are only paying for the ‘option’ to buy the NFT, there is no contractual obligation to actually purchase it.

Let’s use some numbers to illustrate a potential trade:

1. The floor price of a ChefGunny NFT is 10 SOL, and I purchase a price lock at 11 SOL, paying a 5% fee of 0.55 SOL immediately.
2. I now have exactly 7 days for the price to (hopefully) move above my price lock at 11 SOL.
3. Three days later, the floor price moves to 15 SOL and I exercise my price lock, (the ‘option’) to buy the NFT at 11 SOL.
4. I can either pay 11 SOL for the NFT, which is currently worth 15 SOL, or instantly sell the NFT into the collection bid, making a profit of 3.45 SOL. (15-(11+0.55) = 3.45)
5. For this trade, my yield would be approximately 630% (3.45/0.55).
6. Instead, suppose that after 7 days, the NFT floor price fell to 9 SOL, I would not exercise my price lock, but would still have paid the fee, resulting in a 0.55 SOL loss.

In this way, traders can access exposure to the potential upside of an NFT, without physically holding it, thus limiting downside risk to the initial fee.

Furthermore, price lock is much more capital efficient than purchasing the whole NFT for exposure to its upside. If in the example above you had bought the NFT in its entirety, your yield (Profit/Price) would be roughly 50% (5/10), as opposed to 630% (3.45/0.55) which is almost 13x.

Purchasing a Price Lock - Going SHORT

The price lock in this instance, is some price below the current floor price. You purchase the price lock, and pay a fee of at least 3.5% immediately, this is essentially the premium you pay to the price lock seller, and in return you now have the ‘option’ to sell the NFT at your price lock at any time during the 7 days.

In this case, should the floor price of the NFT move below your price lock, you can purchase at the lower market price, and then exercise your price lock above the market price, either selling the NFT at the price lock value, or if you do not own the NFT to sell, you can simply sell into the collection bid, and take the spread (Floor Price - Price Lock) as a profit.

Should the floor price of the NFT move above your lock price at the end of the 7 days, you only lose the initial fee of at least 3.5%.

Remember, as you are only paying for the ‘option’ to buy the NFT, there is no contractual obligation to actually purchase it.

Let’s use some numbers to illustrate a potential trade:

1. The floor price of a ChefGunny NFT is 10 SOL, and I purchase a price lock at 8 SOL, paying a 5% fee of 0.40SOL immediately.