Maximizing Profits: Buying ETH Call Options on Uniswap
HODL vs. LP vs. Calls — which one's best?
- ⬇️❗HODL downside is substantial (can go to 0)
- 🧢 LP upside is capped on Uni V3 — token goes up, you now hold the other token
- 🚫🧢 Call options have unlimited upside, capped downside — but pay premia
Incoming backtest 👇
— Panoptic (@Panoptic_xyz) March 15, 2023
Backtest Strategy
Let's backtest hypothetical DeFi call options (wen Panoptic? 😉)
🗓️ Jun '21 - Feb '23
⚖️ Periodic rebalancing (day, week, or month)
Strategy:
- Buy at-the-money (ATM) call option
- Exercise/close at end of period
- Pay LP fees as premia
Note: Here’s how Panoptic creates a call option
Return breakdown on ETH daily call options 📞
- Payoff: 519%
- Premia: 397%
- Profit: 122%
(All values are USDC)
👉Payoff > Premia → Profit🔝🤑📈
That's pretty good! How does it compare to other rebalancing periods?👇
Dailies vs Weeklies vs Monthlies
🌕 ETH Dailies: 122%
🧑🚀 ETH Weeklies: 11%
🚀 ETH Monthlies: 28%
👉Active management for the win!👈 (Keep in mind this doesn't account for gas fees⛽ — future #ResearchBites 😉)
Good returns, but can calls survive a bear market?
Bull vs. Bear Market
🐂 Bull Market: June '21 - April '22
- 👉 Compare w/ ETH HODL return: 0.8%
🐻 Bear Market: May '22 - Feb '22
- 👉 Compare w/ ETH HODL return: -41%
Not only did call options survive a bear market, they blew HODL out of the water 💎🙌🙅🏻♂️🌊💨
What if you had chosen another fee-tier?
Different Fee Tiers
- 🌕 ETH-USDC 5bps: 122%
- 🚀 ETH-USDC 30bps: 95%
- 🧑🚀 ETH-USDC 100bps: 66%
👉The 5 bps pool outperformed, here's why👇
Here's how different fee-tier pools breakdown
- 🧾 The 5 bps pool had the least trading fees (premia)
- 🚀 The 5 bps pool had the most upward price action
👉 That's why the 5 bps pool was the most profitable!👈
Summary
Key Insights:
- 💎🙌 Calls > HODL b/c capped downside
- 🌊 Calls > LP (we tested this last time👇)
- 🐂🐻 Bull markets are best for calls, bear markets were OK
- 🚀 Bullish price action = high payoff
- 💰 Payoff > premia → profit!
5/14 Returns on buying $ETH put options:
— Panoptic (@Panoptic_xyz) March 8, 2023
🌕 ETH-USDC (5bps): 112%
🚀 ETH-USDC (30bps): 85%
🧑🚀 ETH-USDC (100bps): 57%
(Returns in USDC)
👉Put option returns are exactly opposite of LP returns👈 pic.twitter.com/J4Ic4zaczM
Caveats:
- ⛽ Ignores gas/spread/swap fees/commission
- 💲 Assumes put option premia = LP collected fees
- ❓ This is hypothetical — you can't buy call options on Uniswap (Panoptic soon 🤫)
Disclaimer:
- 📢 None of this should be taken as financial advice.
- ⚠️ Past performance is no guarantee of future results!