Will Option Vaults Dominate Real Yield Products in Crypto?
Options strategies, especially weekly covered call writing, are a very popular yield-generating mechanism used in TradFi.
The U.S Covered Calls ETFs alone have a total of $12 Billion under management with the best performing ETF being 19.47% in returns.
According to Flynt Finance’s back-test report, Bitcoin-covered calls have been shown to produce approximately 49% returns per annum if the strategy was run at a certain risk-return level.
An important factor to consider when running the strategy is the selection of delta and leverage that can maximize returns yet lower the risk of being in the money.
Further, if 10 Bitcoins were invested into this strategy from April 2019, the current asset holdings would be 26.7 BTC. Due to the highly volatile nature of cryptocurrencies, the profits are much higher compared to TradFi.
What are covered calls?
Covered calls are systematic options trading strategies that generate passive income by selling call options on an asset owned by the investor each week.
When selling options, the seller transfers the right to buy the asset at a specific price in return for a premium. The premium is then translated into yield on the investment.
Though it seems quite simple, it is important to keep in mind that the execution (strike) price needs to be selected with care as it is the decider for whether the investor ends up with a win or loss for the week.
Based on the back-tested results, the sweet spot Flynt has discovered managed to achieve a 96.4% win rate over 3.4 years.
Given that yields are created through the current covered call strategy, the real yield is made without any false promises or token emissions, providing sustainable returns for the investors.
Transparency is what you should look
In this context, the market is still in a fearful state of lending yields after the Terra Luna collapse, with memes going around on Twitter saying “if you don’t understand the source of yield, then you are the yield.”
Due to this incident, the industry has matured and many just skip services that provide returns without disclosing the source. In fact, the Real Yield narrative is what many believe will be the natural next step for crypto investors which portrays dividend-like returns.
In simple terms, protocols and services that provide returns to investors through profits generated through the platform or trading activities are a sustainable way of earning passive income.
Flynt’s CEO, David Seo, emphasizes that “as a player in web3, one of the most vital actions to take is to be radically transparent and communicate each and every step the service is making” and that “Flynt is willing to display all the information we have regarding the services we provide because we have nothing to hide”.
Flynt explained that a 5x covered call strategy is available on Bitcoin, which provides a sustainable yield of up to 40%.
They highlighted that Flynt is in the stage of back-testing other assets and various structured strategies that can max out returns for relatively less risk.
Flynt also mentioned that they pride themselves on only providing products that have historically made profits rather than blindly focusing on expanding product lines.
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