Ethereum Long Volatility
This automated strategy aims to profit from volatility on the ETH price. Using ETH Options via Lyra Finance.
It does this by buying out-of-the-money puts and calls on a one-month expiry basis.
Put and Call Options for ETHv
ETHv has unlimited upside when Ethereum price is volatile, and experiences limited losses when Ethereum price in not volatile.
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Backtesting results below show the strategy performance modelled from Sept 2021 to the end of August 2022. This shows the strategy outperforms when the ETH price volatility spikes, and underperforms when ETH trades within a strategy determined range.
Given that a key tenet of dHEDGE pools is that users are always able to access their assets at any time (i.e. no locked up funds), timing a withdrawal carefully from ETHv may be necessary to avoid any force close penalties.
When an option position is within 12hrs of expiry, or out of tradeable range, exiting your ETHv position may result in the options component being ‘force closed’ and incurring a trading penalty.
From the Lyra docs: Traders will only be able to close existing positions that are outside of the delta cutoff range OR with less than 12 hours to go using the ForceClose mechanism, which incurs a penalty for doing so.