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What's the Most Capital Efficient Options Selling Strategy?

Brandon Ly

Maximizing your potential returns with minimal capital? ๐Ÿ’ฐ It's not magic, it's capital efficiency! ๐Ÿ”ฎ

๐Ÿ’ช๐Ÿ“ˆ Weโ€™ll discuss 4 options strategies that can help you make more money with less capital:

What is capital efficiency?

In options trading, it's the ability to control a maximum amount of funds with minimal capital investment. It measures how effectively you use available capital to achieve your desired trading objectives.

Sounds complicated? Donโ€™t worry, weโ€™ll ELI5 (๐Ÿต๐Ÿ‘‘๐Ÿ‘‡)!

Imagine a conveyor belt of small bananas ๐ŸŒ. As the bananas ๐ŸŒ pass through the magic box ๐Ÿ“ฆ, they turn into GIANT bananas ๐Ÿ’‰๐ŸŒ.


  • Small banana ๐ŸŒ = initial investment
  • GIANT banana ๐Ÿ’‰๐ŸŒ = funds you control
  • ๐Ÿ’‰= Panoptic's collateral tracker

Let's look at the formula๐Ÿ‘‡

Capitalย Efficiency=(๐Ÿ’‰๐ŸŒ)๐ŸŒ\text{Capital Efficiency} = \frac{(๐Ÿ’‰๐ŸŒ)}{๐ŸŒ}

That is, capital efficiency is the ratio of "notional value" to collateral.

  • Collateral: Funds backing the position
  • Notional Value: The value a position controls

(Both of these differ from "option value", which is the premia)

In Panoptic:

  • Sellers get up to 5x leverage
  • Buyers get up to 10x leverage

In other words:

  • Selling a 1 ETH option requires 0.2 ETH in collateral
  • Buying a 1 ETH option requires 0.1 ETH in collateral

So which strategy is most efficient? Let's find out!

Strategy #1 - Naked Call

Naked calls ๐Ÿ™ˆ๐Ÿ“ž are pretty efficient...Naked Call ๐Ÿ™ˆ๐Ÿ“ž = sell 1 call:

  • Collateral: 0.2 ETH
  • Notional Value: 1 ETH
  • โ†’ Capital Efficiency: 5x ๐Ÿ˜

That's very capital efficient ๐Ÿ˜, but also risky ๐Ÿ˜ณ: naked calls have infinite risk ๐Ÿ’€

Let's compare with covered calls!

Strategy #2 - Covered Call

Covered Call ๐Ÿ›Œ๐Ÿป๐Ÿ“ž = sell 1 call + hold asset:

  • Collateral: 1 ETH
  • Notional Value: 1 ETH
  • โ†’ Capital Efficiency: 1x ๐Ÿ˜”

Covered calls require you to hold the full amount of the underlying asset, so it won't be as efficient.

Let's try the "Poor Man's Covered Call"!

Strategy #3 - Poor Manโ€™s Covered Call

Poor Man's Covered Call (PMCC) โ†—๏ธ๐Ÿงˆ is a synthetic covered call. It's like a covered call, but you don't need to hold the underlying asset. PMCC โ†—๏ธ๐Ÿงˆ = sell 1 call + buy 1 call:

  • Collateral: 0.2 ETH + ~0.1 ETH
  • Notional Value: 2 ETH
  • โ†’ Capital Efficiency: ~6.66x ๐Ÿ˜

(Note: the collateral for buying the call is slightly larger than 0.1 ETH. This is because there is an โ€œin-the-money amountโ€ that is equal to the max loss the long position can suffer in terms of intrinsic value. Hence, the capital efficiency will be slightly less than 6.66x.)

Strategy #4 - Short Straddle

Selling straddles is a bet against volatility. Can straddles beat the previous 6.66x efficiency? Straddle ๐Ÿคธ๐Ÿฝโ€โ™‚๏ธ = sell 1 call + sell 1 put:


  • Collateral: 0.2 ETH + 0 ETH
  • Notional Value: 2 ETH
  • โ†’ Capital Efficiency: 10x ๐Ÿคช

Wow, 10x efficiency is the most! Why's that? Straddles are made up of 2 legs: 1 call & 1 put. Only one leg can be โ€œtestedโ€ at any given time, i.e. if the put is ITM then the call is OTM, and vice versa. Hence, collateral req. for selling straddles is relaxed to just the req. of one leg (whichever is larger). ๐Ÿคฏ


In order of capital efficiency:

  1. Straddle
  2. Poor Man's Covered Call
  3. Naked Call
  4. Covered Call


  • Collateral requirements above assume normal market conditions ("target pool utilization")
  • See more here

For more examples of capital efficient strategies and Options Trading 101 basics, visit here.


  • How well do DeFi straddles perform? (Future #ResearchBites ๐Ÿ˜‰)


  • ๐Ÿ“ข None of this should be taken as financial advice.