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Maximizing Profits: Buying ETH Call Options on Uniswap

· 2 min read
Brandon Ly

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 👇

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

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Return breakdown on ETH daily call options 📞​

  • Payoff: 519%
  • Premia: 397%
  • Profit: 122%

(All values are USDC)

img-2

👉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%

img-3

👉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%

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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%

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👉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

img-6

👉 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!

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!