Leveraged Options Vaults
Boost your APY up to 5X by taking leverage or earn 10%+ APY by contributing to the lending pool
Polysynth Leveraged Options Vaults are a truly next-generation offering, the first of its kind in DeFi, enabling investors to leverage their collateral and boost the APY by up to 5X.
We have designed Leveraged Options Vaults with the objective of:
  1. 1.
    Enabling investors to maximize their yields
  2. 2.
    Enhance the capital efficiency for investors
  3. 3.
    Bringing more liquidity to options vaults
  4. 4.
    Offering lenders a low-risk yield-generating opportunity without being subject to credit cyclicality

How do Leveraged Options Vaults work?

There are two main participants:
  1. 1.
  2. 2.
Lenders lend their capital to the lending pool, which is then made available to investors for leveraging their capital. Investors can take up to 5X leverage, given there is an unutilized balance in the lending pool.
Since the leverage is provided by lenders, leveraged options vaults are always fully collateralized. If the leveraged vaults expire OTM (Out of the Money), investors make up to 5X on the base APY. If leveraged vaults expire ITM (In the Money), options buyers are made whole first from the investor's collateral, then only if required from lenders capital lent to the investor.

Working Mechanism

Assume the following parameters:
Strategy: ETH Covered Call
Spot Price: $1,000
Strike Price: $1,400
Collateral: 10 ETH
Leverage: 5X
Position Notional: 10 ETH x 5 = 50 ETH
Borrowing: 50 ETH - 10 ETH = 40 ETH
Borrow Interest Rate: 10%
Number of Contracts: 50

Case 1: Without Leverage

Sub-Case 1.1: DOV expires OTM

Premium Notional: 0.0045 ETH per contract
Profit: 0.0045 ETH x 10 = 0.045 ETH
Yield: 0.45%
APY on Collateral: (1+0.0045)^52 - 1 = 26.2%

Sub-Case 1.2: DOV expires ITM

Price at Expiry: $1,500
Loss: ($1500 – $1,400)/$1,400 x 10 = 0.6666666667 ETH
Premium Collected: 0.045 ETH
Net PnL: 0.045 ETH - 0.6666666667 ETH = -0.6216666667 ETH
Collateral After Expiry: 10 ETH - 0.6216666667 ETH = 9.3783333333 ETH

Case 2: With 5X Leverage

Sub-Case 2.1: DOV expires OTM

Premium Notional: 0.0045 ETH per contract
Profit: 0.0045 x 50 = 0.225 ETH
Yield: 2.25%
APY on collateral: (1+0.0225)^52 - 1 = 218%
Annual Interest Cost: 10%
Net APY: 208%

Sub-Case 2.2: DOV expires ITM

Price at Expiry: $1,500
Loss: ($1,500 – $1,400)/$1,400 x 50 = 3.3333333333 ETH
Premium Collected: 0.225 ETH
Net PnL: 0.225 - 3.3333333333 = -3.1083333333 ETH
Collateral After Expiry: 10 ETH - 3.1083333333 ETH = 6.8916666667 ETH
Leveraged Options Vaults is a medium-risk, high-return strategy. You should understand how options work to use them effectively to maximize returns.


Lenders are users who lend their assets to be used as leverage by investors who wish to sell options while leveraging their collateral. Lending to the lending pool can be a very profitable thing to do.
Further, being a lender in leveraged options vaults pool protects the lenders from credit cycles experienced on protocols like AAVE. In bear markets, the borrowing demand vanishes; hence the APY offered by AAVE can become insignificant. For example, if you lend ETH on AAVE today, the APY offered is a minuscule 0.07%. On the contrary, DOVs enable investors to earn in all market conditions and thereby, being a lender in leveraged options vaults will make lenders less prone to credit cycles.
If the leveraged options vaults expire OTM, lenders earn interest on the assets lent to the investors. Even if the leveraged options vaults expire ITM, the investor's collateral is used first to pay for the options buyer’s payoff before lenders' capital is even touched to make the options buyers whole.
Taking the earlier example where investors had sold call options with the spot price of $1,000 and strike price of $1,400. For the option to expire ITM, the spot price will have to move up $400 within the weekly expiry window, which is a 40% up move.
Now, assume an investor has taken 3X leverage on his collateral, i.e. he has 33.33% collateral, and 66.67% borrowed collateral in the DOV. For the investor's entire capital to get depleted, the underlying spot price will have to move up 40% + 33.33%, i.e. 73.33% in a single week, which is a low probability event.


When an investor opens a leveraged options vaults position, the maximum leverage he can take is up to 5X. Which means,
Initial Margin Requirement (IMR) = 20%
If an investor's position in the leveraged options vault falls in the money, their collateral reduces. As a result, their margin ratio (MR) drops.
If the MR falls below IMR, the user’s position is partially liquidated to decrease the leverage and increase the MR.
However, if MR falls below the maintenance margin requirement (MMR), which is set at 10%, then the investor's position is fully liquidated unless he deposits more collateral during the week to avoid liquidation at the time of vault expiry. IMR and MMR can be set via governance.
The liquidation penalty is 2.5%, 50% of which is paid to the liquidation bot, and 50% accrues to the insurance fund. If the investor's collateral is insufficient to pay the liquidation bot, the insurance fund act as a backstop to pay the liquidation bot, which is further backstopped by the treasury.
Note: Liquidations are triggered after the current vault has expired.


Which options vaults on Polysynth support leverage?
All option vaults on Polysynth support leverage.
How much leverage can I take?
Investors can take up to 5X leverage, subject to unutilised lending in the lending pool.
Are the interest rates offered to lenders variable?
Yes. If the lending pool utilisation rate becomes high (say 75% or above), the interest rate increases based on a formula that factors the utilisation rate to incentivise more lenders to participate in the lending pool.
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How do Leveraged Options Vaults work?
Working Mechanism
Case 1: Without Leverage
Case 2: With 5X Leverage