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Maximizing Profits: Buying Put Options on 16 Uniswap Pools

Brandon Ly


Imagine a market that only lets you sell assets, never buy...Could you be profitable?

That market isn't imaginary. That market is...Uniswap Liquidity Providing!

LPing = selling options, but what if users could SHORT LP tokens and effectively BUY options...?

LP = Short Put

LP positions on Uni V3 mimic the payoff of selling put options. Uniswap users can only deposit liquidity and sell put options, which means they can only take a bullish position.

  • Token goes up, LP value goes up (but capped) ๐Ÿš€
  • Token goes down, LP value goes down ๐Ÿ˜ญ


While selling options can be profitable, our backtests show that it wasn't always the case ๐Ÿ‘‡

Is there a way to "short" an LP position and effectively buy a put option...?

We'll answer this... But first, let's simulate an options buying strategy!

Backtest Strategy

For this study:

  • ๐Ÿ—“๏ธ Jun 2021 - Jan 2023 (20 months) where applicable
  • โš–๏ธ Daily rebalancing
  • ๐Ÿ“ Narrow (r = 1.05) range โ†”๏ธ 0DTE

Daily strategy:

  1. Buy ATM put option by shorting LP position
  2. Exercise/close put option at end of day
  3. Pay LP swap fees as premia

ETH Puts

Returns on buying ETH put options:

  • ๐ŸŒ• ETH-USDC (5bps): 112%
  • ๐Ÿš€ ETH-USDC (30bps): 85%
  • ๐Ÿง‘โ€๐Ÿš€ ETH-USDC (100bps): 57%

(Returns in USDC)


๐Ÿ‘‰Put option returns are exactly opposite of LP returns๐Ÿ‘ˆ

L1/Utility Token Puts

Buying "L1/Utility token" put options:

  • ๐Ÿคฉ BTT (+67%)
  • ๐Ÿ˜ GNO (+40%)
  • ๐Ÿ˜Š $WBTC (+12%)
  • ๐Ÿ˜ฆ MATIC (-47%)
  • ๐Ÿ˜ข LINK (-86%)
  • ๐Ÿ˜ญ ENS (-101%)


(Returns in ETH, see legend ๐Ÿ‘‡ for pool details)

DeFi Token Puts

Buying "DeFi token" put options:

  • ๐Ÿ˜Ž 1INCH (+74%)
  • ๐Ÿ™‚ AAVE (+10%)
  • ๐Ÿ™‚ UNI (+10%)
  • ๐Ÿ˜• MKR (-1%)

(Returns in ETH)


๐Ÿ‘‰DeFi puts did pretty good!๐Ÿ‘ˆ

NFT/Meme Token Puts

Buying "NFT/Meme token" put options:

  • ๐Ÿ˜ถ LOOKS (-9%)
  • ๐Ÿ˜ฌ APE (-42%)
  • ๐Ÿ˜ณ HEX (-52%)

(Returns in ETH)


๐Ÿ‘‰Don't "put" โคต๏ธ down the meme tokens๐Ÿ‘ˆ


Key Insights:

  • ๐Ÿป Bearish price action = high payoff
  • ๐Ÿ’ฐ Payoff > premia โ†’ profit!


In TradFi, options buying is more profitable when Implied Volatility (IV) < Realized Volatility (RV). Do we see the same result here?

Instead of IV let's use the premia:

  • Easier to calculate ๐Ÿงฎ
  • โฌ†๏ธ IV โ‡” โฌ†๏ธ Premia


Graph above:

  • ๐Ÿถ Outperforming puts (green dots): lie above the line, low premia given volatility ("IV < RV")
  • ๐Ÿ˜ˆ Underperforming puts (pink dots): lie below the line, too expensive ("IV > RV")

Is there a way to "short" an LP position and, hence, buy a put option?

Enter Panoptic! Panoptic allows you to buy and sell DeFi options for any crypto asset, any strike, any size.


  • โ›ฝ Ignores gas/spread/swap fees/commission
  • ๐Ÿ’ฒ Assumes put option premia = LP collected fees
  • โ“ This is a "what if" scenario โ€” you can't buy put options on Uniswap (yet)


  • โš–๏ธ Are LP returns in disequilibrium?

(Future #ResearchBites ๐Ÿ˜‰)


  • ๐Ÿ“ข None of this should be taken as financial advice.
  • โš ๏ธ Past performance is no guarantee of future results!