Maximizing Profits: Buying ETH Call Options on Uniswap
What if you could buy calls on Uniswap V3?
HODL vs. LP vs. Calls — which one's best?
⬇️❗HODL downside is substantial (can go to 0)
🧢 LP upside is capped on Uni V3 — token goes up, you now hold the other token
🚫🧢 Call options have unlimited upside, capped downside — but pay premia
Incoming backtest 🧵👇
Let's backtest *hypothetical* DeFi call options (wen Panoptic? 😉)
🗓️ Jun '21 - Feb '23
⚖️ Periodic rebalancing (day, week, or month)
Strategy:
Buy at-the-money (ATM) call option
Exercise/close at end of period
Pay LP fees as premia
Note: Here’s how Panoptic creates a call option
📞Return breakdown on $ETH daily call options
Payoff: 519%
Premia: 397%
Profit: 122% (All values are USDC)
👉Payoff > Premia → Profit🔝🤑📈
That's pretty good! How does it compare to other rebalancing periods?👇
Dailies vs weeklies vs monthlies
🌕 ETH Dailies: 122%
🧑🚀 ETH Weeklies: 11%
🚀 ETH Monthlies: 28%
👉Active management for the win!👈 (Keep in mind this doesn't account for gas fees⛽ — future #ResearchBites 😉)
Good returns, but can calls survive a bear market?👇
Bull vs. Bear Market
🐂 Bull Market: June '21 - April '22
👉 Compare w/ ETH HODL return: 0.8%
🐻 Bear Market: May '22 - Feb '22
👉 Compare w/ ETH HODL return: -41%
Not only did call options survive a bear market, they blew HODL out of the water 💎🙌🙅🏻♂️🌊💨
What if you had chosen another fee-tier?
Different Fee Tiers
🌕 ETH-USDC 5bps: 122%
🚀 ETH-USDC 30bps: 95%
🧑🚀 ETH-USDC 100bps: 66%
👉The 5 bps pool outperformed, here's why👇
Here's how different fee-tier pools breakdown:
🧾 The 5 bps pool had the least trading fees (premia)
🚀 The 5 bps pool had the most upward price action
👉 That's why the 5 bps pool was the most profitable!👈
Key Insights:
💎🙌 Calls > HODL b/c capped downside
🌊 Calls > LP (we tested this last time👇)
🐂🐻 Bull markets are best for calls, bear markets were OK
🚀 Bullish price action = high payoff
💰 Payoff > premia → profit!
Caveats:
⛽ Ignores gas/spread/swap fees/commission
💲 Assumes put option premia = LP collected fees
❓ This is hypothetical — you can't buy call options on Uniswap (Panoptic soon 🤫)
Disclaimer:
📢 None of this should be taken as financial advice.
⚠️ Past performance is no guarantee of future results!