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 🧵👇

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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!

Panoptic @Panoptic_xyz

5/14 Returns on buying $ETH put options: 🌕 ETH-USDC (5bps): 112% 🚀 ETH-USDC (30bps): 85% 🧑‍🚀 ETH-USDC (100bps): 57% (Returns in USDC) 👉Put option returns are exactly opposite of LP returns👈

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 🤫)

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Disclaimer:

• 📢 None of this should be taken as financial advice.

• ⚠️ Past performance is no guarantee of future results!