HODL vs. LP vs. Calls β which one's best?
- β¬οΈβHODL downside is substantial (can go to 0)
- π§’ LP upside is capped on Uni V3 β token goes up, you now hold the other token
- π«π§’ Call options have unlimited upside, capped downside β but pay premia
Incoming backtest π
β Panoptic (@Panoptic_xyz) March 15, 2023
Backtest Strategyβ
Let's backtest hypothetical DeFi call options (wen Panoptic? π)
ποΈ Jun '21 - Feb '23
βοΈ 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: Hereβs how Panoptic creates a call option
Return breakdown on ETH daily call options πβ
- Payoff: 519%
- Premia: 397%
- Profit: 122%
(All values are USDC)
πPayoff > Premia β Profitππ€π
That's pretty good! How does it compare to other rebalancing periods?π
Dailies vs Weeklies vs Monthliesβ
π ETH Dailies: 122%
π§βπ ETH Weeklies: 11%
π ETH Monthlies: 28%
πActive management for the win!π (Keep in mind this doesn't account for gas feesβ½ β future #ResearchBites π)
Good returns, but can calls survive a bear market?
Bull vs. Bear Marketβ
π Bull Market: June '21 - April '22
- π Compare w/ ETH HODL return: 0.8%
π» Bear Market: May '22 - Feb '22
- π Compare w/ ETH HODL return: -41%
Not only did call options survive a bear market, they blew HODL out of the water πππ π»ββοΈππ¨
What if you had chosen another fee-tier?
Different Fee Tiersβ
- π ETH-USDC 5bps: 122%
- π ETH-USDC 30bps: 95%
- π§βπ ETH-USDC 100bps: 66%
πThe 5 bps pool outperformed, here's whyπ
Here's how different fee-tier pools breakdownβ
- π§Ύ The 5 bps pool had the least trading fees (premia)
- π The 5 bps pool had the most upward price action
π That's why the 5 bps pool was the most profitable!π
Summaryβ
Key Insights:
- ππ Calls > HODL b/c capped downside
- π Calls > LP (we tested this last timeπ)
- ππ» Bull markets are best for calls, bear markets were OK
- π Bullish price action = high payoff
- π° Payoff > premia β profit!
5/14 Returns on buying $ETH put options:
β Panoptic (@Panoptic_xyz) March 8, 2023
π ETH-USDC (5bps): 112%
π ETH-USDC (30bps): 85%
π§βπ ETH-USDC (100bps): 57%
(Returns in USDC)
πPut option returns are exactly opposite of LP returnsπ pic.twitter.com/J4Ic4zaczM
Caveats:
- β½ Ignores gas/spread/swap fees/commission
- π² Assumes put option premia = LP collected fees
- β This is hypothetical β you can't buy call options on Uniswap (Panoptic soon π€«)
Disclaimer:
- π’ None of this should be taken as financial advice.
- β οΈ Past performance is no guarantee of future results!