Will Option Vaults Dominate Real Return Products in Crypto?
Option strategies, especially weekly covered call writing, are a very popular return generating mechanism used in TradFi.
US Covered Calls ETFs alone have a total of $12 billion under management, with the top ETF returning 19.47%.
According to Flynt Finance’s back-test report, Bitcoin covered calls have been shown to return approximately 49% per year if the strategy was run at a certain risk-return level.
An important factor to consider when running the strategy is the choice of delta and leverage that can maximize returns while reducing the risk of being in the money.
Furthermore, if 10 Bitcoins were invested in this strategy as of April 2019, the current asset holding 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 exchange for a premium. The premium is then translated into a return on the investment.
Although it seems quite simple, it is important to remember that the strike price must be chosen carefully, as it is the one that determines whether the investor ends up with a win or a loss for the week.
Based on the backtested results, the sweet spot Flynt has discovered managed to achieve a 96.4% win rate over 3.4 years.
Given that the return is created through the current covered call strategy, the real return is provided without false promises or token emissions, providing sustainable returns for investors.
Transparency is what you should see
In this context, the market is still in a terrible state of lending rates after the Terra Luna collapse, with memes doing the rounds of Twitter say “if you don’t understand the source of return, then you are the return.”
Due to this incident, the industry has matured and many people just skip services that provide returns without stating the source. Actual Real Yield narrative is what many believe will be the natural next step for crypto investors showing dividend-like returns.
Simply put, protocols and services that provide returns to investors through profits generated through the platform or trading activities are a sustainable way to earn passive income.
Flynt’s CEO, David Seo, emphasizes that “as a player in web3, one of the most important actions to take is to be radically transparent and communicate every step the service takes” and that “Flynt is willing to show any information we have regarding the services we deliver because we have nothing to hide”.
Flynt explained that a 5x covered call strategy is available on Bitcoin, which provides a sustainable return of up to 40%.
They highlighted that Flynt is in the process of testing other assets and various structured strategies that can maximize returns for relatively less risk.
Flynt also mentioned that they pride themselves on only offering products that have historically served rather than focusing blindly on expanding product lines.
Disclaimer
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