Bitcoin Covered Call Strategy live on Stake DAO!
To double down on the success of our ETH Covered Call Strategy (~25–30% APY), we’ve launched a BTC Covered Call Strategy for all our Bitcoin holders out there!
Herd, covered calls might just be the sexiest strategy you’ve never heard of. Whether you’re a long, mid, or short-term holder of Bitcoin, you can use covered calls to generate yield in neutral to bullish markets, and offer downside protection when the market doesn’t go your way!
How does the strategy work?
Firstly, the strategy generates yield on wBTC deposits by automatically selling out-of-the-money call options to market makers each week, and covers its position by locking the equivalent wBTC collateral, a process known as a ‘covered call strategy’. In return for selling or ‘writing’ the options, the strategy receives a premium — the amount market makers must pay for purchasing a call.
These premiums are added into the strategy and compounded, producing an annual percentage yield. The goal for the Stake DAO BTC Covered Call Strategy is for the options sold each week to expire worthless, allowing depositors to earn juicy option premiums while maintaining wBTC upside.
Decentralized options protocol Opyn powers the call-selling process — you can check out our podcast interview with their founder here.
How does the strategy generate additional yield? What is the APY?
Just like our ETH Covered Call, the BTC Covered Call receives two streams of yield: both the yield generated from options writing, as well as the full yield accumulated on deposits in the Passive BTC Strategy.
In practice, the APY generated from the strategy is: (Weekly Options-writing yield *52 weeks) + Passive BTC APY. Based on current rates and strategy deposits, Annual Percentage Yield on the Active wBTC Options Strategy should exceed 30% APY.
What are the risks of using the strategy?
The main risk for users deposited into the BTC covered call strategy is if the call options expire in the money (the price of wBTC is above the option strike price at expiry), resulting in a loss for the week. In the event that the options expire in-the-money, the loss is equal to the difference between the strike price and the settlement price. Stake DAO employs conservative risk-management to strike price selection with the plain objective of avoiding losses, and keeping the strategy as profitable as possible.
Furthermore, the strategy may incur slippage when you deposit or withdraw wBTC, as your wBTC is used to deposit or withdraw liquidity on the Curve sbtc pool. Depending on the imbalance in the pool, the slippage can work in or against your favor. However, we ensure that you won’t face more than 0.2% slippage when you deposit on our front end.
As with all Stake DAO strategies, there is a risk of smart contract failure in the underlying vault — in this case, the Curve Finance wBTC pool and the Opyn contracts.
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