# Impermanent Gain Pricing

Understanding Impermanent Gain Premiums, and key factor defining its Pricing.

An **Option Premium** is the current market price of an option contract. On Smilee, it's the Yield received by the Liquidity Providers in the Earn Vaults.

## Current & Expiry Value

It's important to understand the difference between the **current** **value** of Impermanent Gain, and their future **value at expiry.**

Current Value ("

*Your Position*" in the image below) is the value of an Impermanent Gain at a given moment, quoted by the Synthetic AMM.Expiry Value (the "

*Payoff Chart*" in the image below) is the projected payoff of an Impermanent Gain at expiry, assuming the price of the underlying token doesn't change.

For example, this GMX BULL Impermanent Gain is currently in profit as the Synthetic AMM is currently pricing the Option at $1,920 while the Entry Premium paid was $1,713. If the trader were to sell the Option back to the AMM at that given moment, he would register a PnL of +$208 or +12.12% (*net of fees*).

That said, if the trader were to wait until expiry (which is in 20h 25m), **assuming the price of the underlying asset does not change, **he would register a loss of -40.65%. How is that possible?

This is because of the **Option** **Theta** â€“ As the Impermanent Gain nears its expiration date, the time value will edge closer and closer to 0, while the intrinsic value will closely represent the difference between the underlying price and the strike price of the contract.

Theta refers to the rate of decline in the value of an option over time.

## Understanding Implied Volatility

Implied Volatility is the market's forecast of a likely movement in a Token's price. Implied Volatility is used to price Options, where higher implied volatility results in Options with higher premiums and vice versa.

An option's Vega is its change in premium given a 1% change in Implied Volatility.

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