What options strategy is traded?

Leveraged Options Vaults (LOV)

First, readers should recall that Cega’s standard “Pure Options Vault” trades a worst-of put basket with a 100% strike with a knock-in barrier at X%. Here’s a quick reminder of definitions:

  • Knock-In Barrier is a price level at which down-side appears. If you have a 50% KI barrier, it means “the loss of the put does not realize until the spot touches below 50%.

  • Worst-of Put Basket means there are 2 or more underlyings we are tracking (i.e. BTC, ETH) and whichever is performing lower than where it started gets used for pay-off calculations

  • As an example, the Cega “Starboard” vault says that “if neither BTC nor ETH fall below 50% in the next 27 days, depositors will receive 12% APY”

For the Cega LOV structure, it is a worst-of put spread. If Nx leveraged (e.g. 2x), users are simultaneously (1) short Nx the 100% strike put basket and (2) long Nx the [1-(1/N)] strike put.

LOV examples:

  • If 3x leveraged, ie same strikes but users are short 3x the ATM put (+3x the 66.66% strike put so that the overall payout is floored at 0)

Depending on the difference in the option prices at 100% strike and [1-(1/N)] strike, the growth of APY is not linear. However, we are able to increase APY in a capital efficient strategy for our users to stake into. As a result, we are able to create APY levels of up to ~50% APY.

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