Options Strategies
All the strategies available on Polysynth to earn in all market conditions

Covered Call Vault

Covered Call Vault and Payoff Scenario
A covered call is a financial strategy wherein the investor selling a call option owns an equivalent amount of the underlying security. This strategy can be created by holding a long position on an asset and then selling call options on that same asset to generate an income stream. This strategy entails very low risk as the investor's ownership of the underlying can serve as a cover if the call option expires in the money and the buyer of the call option chooses to exercise.
Selling a covered call is suitable when you are moderately bullish or neutral about the price of the underlying. It is an ideal way to earn additional income for someone who intends to hold the underlying for longer periods but does not expect an appreciable price increase in the near term. The maximum profit potential of a covered call is equivalent to the premium received for the options sold, plus the potential upside in the underlying between the current spot price and the strike price.

Potential Benefits of a Covered Call

Covered calls offer investors three potential benefits:
An additional income stream from the underlying
Covered calls can be used regularly to add several percentage points of cash income to your annual returns from the underlying.
Selling covered calls can help target a selling price
For example, say a Bitcoin is bought for $30,000, and a $31000 covered call on the same is sold for $90. If this covered call is exercised, then a total of $31,090 is received. Even if the price of Bitcoin only rises to $31,050, a total of $31,090 will still be received. If the investor is willing to sell Bitcoin at this price, then the covered call helps target that objective, even if the price of Bitcoin never rises to that level.
Downside protection
In the example above, the premium received of $90 per Bitcoin reduces the break-even point of owning Bitcoin and, therefore, reduces the risk involved.

Potential Risks of a Covered Call

The opportunity cost of missing out on asset mooning
The covered call seller is obligated to sell the underlying at the strike price, but this will occur rather rarely, as a big increase (25%-30%) in the price of BTC or ETH is unlikely within a week. Even in the unlikely case that BTC or ETH goes up exponentially inside a week, you will still be tremendously up in dollar terms. It is a positively skewed risk-reward scenario, as you only risk getting exercised if BTC or ETH absolutely moons within a week.

Covered Put Vault

Covered Put Vault Payoff Scenario
With cash-covered puts, stablecoins such as USDC or amUSDC are deposited into the vault to sell an out-of-the-money put option while simultaneously setting aside the capital needed to purchase the underlying. This strategy also entails very low risk as the capital set aside can serve as a cover if the put option expires in the money and the buyer of the put option chooses to exercise.
This strategy serves as a great way to acquire the underlying asset at lower than the current market price if the option expires in the money.

Potential Benefits of a Covered Put

Covered puts offer investors two potential benefits:
An additional income stream
Covered puts can be used regularly to add several percentage points of cash income. Regardless of what happens later on in the trade, as the put seller, you always get to keep the premium that is paid upfront.
Selling covered puts can help target a buying price
Compared to buying the underlying outright, in which you’d pay the current market price and have guaranteed ownership, selling a put option allows you to generate some income and potentially own the underlying at a lower price.

Potential Risks of a Covered Put

Obligation to buy at strike price even if the value of the underlying is lesser
Covered puts have substantial risk because the put seller is obligated to buy the underlying at the original strike price even if the value of the underlying is much below the strike price. To mitigate this risk, we only sell put options with weekly expiry so that the risk of large adverse swings is greatly reduced.