Option Selling Program

💡Idea Discussions
1

Hi all,

I would like to float the idea of an option selling program for Abracadabra <> SPELL. I work for an OTC, Token MM and Options Prop Shop called STS Digital (stsdigital.io) and we specialise in derivative altcoin liquidity.

PROPOSAL

  • The protocol sells a SPELL Put and SPELL Call every 3 weeks.
  • Both options are 20% Out Of The Money.
  • STS pays the protocol roughly 2% premium in stables (depending on market volatility).
  • The protocol places the required collateral with STS,
  • which we then use to Market Make SPELL on Centralised and/or Decentralised venues.

At expiry if…
SPELL is < Put Strike: The protocol acquires more SPELL 20% below mkt at inception
SPELL is > Call Strike: The protocol sells SPELL 20% above mkt at inception
Put < SPELL < Call: There is no transaction
In all cases, the protocol earns and keeps the premium

Why this works…
We think this is a very novel way to improve liquidity for established tokens like SPELL that have a blended treasury of USD and coin. We pay the protocol a premium and we improve liquidity on the token at the same time. There is no contract, there is no free option, there is no loan of tokens and we help turn your treasury into a productive asset.

As a market maker, our exposure is inherently short convexity. Combining that service alongside an option selling strategy from the protocol allows for more aggressive and efficient liquidity. I would love to go into this in more depth if this piques your interest.

Jeff

STS is licensed and regulated by Bermuda Monetary Authority with offices in Switzerland and Singapore. We operate with the highest moral standards and value transparency above all.

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2

We currently do this with ribbon finance. I believe we have been providing 100,000,000 spell as the collateral.

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3

Hi, thanks for highlighting that @Shibaattacknow . I would like to add however that we participate in those auctions and I have never been made aware of the SPELL vault. I doubt you are getting the best execution and follow on benefits of these sales.

I would push you to formalize the process, increase sizes to attract more bidders, and run the auction yourselves with dedicated Market Makers. The winning bidders on the ribbon flow are most likely just buying a cheap punt and not doing much with it.

We would propose a longer dated option (3wks instead of 1wk) to provide structural gamma to the market. We would use your collateral to actively market make the token (either grid style setup on a CEX or LP DEX) and improve liquidity while paying you a yield. As it stands now, just selling 1wk low delta calls is picking up pennies and not doing much else.