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Put Selling
In a put selling strategy, a user would deposit a stable coin (e.g. USDC). Thetanuts would sell a put option to market makers on behalf of the user to generate a premium (paid in the same stable coin).
The put selling option is fully collateralized by the denominated stable coin. This ensures zero liquidation risks.
Example: For a WBTC-put selling option, users would deposit their USDC stable coin into the option vault and receive premiums in the form of USDC tokens.
To learn more about how put selling work please read, How to Sell Put Options to Benefit in Any Market
Put selling is ideal for a user who wants to accumulate more stable coins and holds the a market view that the market will be moving sideways or upwards for the duration of the sold put option.
Thetanuts runs 6-10 delta weekly strategies for ETH and BTC based on prevailing market rates with reference to Deribit.
For all other tokens, Thetanuts sets the strike at 20% below spot for bi-weeklies. If the yields are too low, for instance in a period of low volatility, Thetanuts will adjust the strike closer to achieve a 6-10 delta return.
Strikes are selected based on these parameters at 0900 UTC on Fridays, when auctions are conducted.
There are 3 main scenarios when considering using the put selling strategy. To illustrate these scenarios, it is assumed that the initial price of ETH is $2,500 and the user has deposited $2,500 USDC into an ETH-put selling vault. The strike price is at $2,000 and is expiring in 1 week. The premium is 10% ($250 USDC) and is paid upfront after the auction.
Scenario 1: The market price of ETH increases to $2,750 at expiry (above the strike price & above the initial price)
1. The put option expires worthless and the user would have collected $250 USDC worth of premiums from selling the option
2. Net USDC position: $2,500 + $250 = $2,750 (+10%)
3. The user would have increased his/her net USDC position by 10% by selling the put option.
Scenario 2: The market price of ETH decreases to $2,250 (above the strike price & below the initial price)
1. The put option expires worthless and the user would have collected $250 USDC worth of premiums from selling the option
2. Net USDC position: $2,500 + $250 = $2,750 (+10%)
3. The user would have increased his/her net USDC position by 10% by selling the put option.
Scenario 3: The market price of ETH decreases to $1,500 (below the strike price, below the initial price)
1. The put option is exercised, the market maker has the right to buy from the option vault 1 ETH at the strike price of $2,000.
2. The user would have still collected $250 USDC worth of premiums from selling the option
3. Net USDC position: $1,500 (spot price) - $2,000 (strike price) + $2,500 (initial position)+ $250 (premiums) = $2,250 (-10%)
4. The user would have made a loss on his/her net USDC position by 10% by selling the put option.
Last modified 7mo ago