ETH - 18 March 2022
The Dopex Community Analyst series is a series of strategies, ideas, opinion pieces and educational resource written by independent contributors from the Dopex community. Every month many knowledgeable community analysts share a short analyses of a coin of their choice and share these with Dopex. The goal of these articles is to empower the community and help Dopex increase SSOV volume & deposits. With these articles we hope to provide users with additional information that will help them in making an informed choice of strategy using our products.
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Embracing the Chaos
***by @donuts_itm
*****Token & Position Introduction
**Ethereum is the 2nd largest market cap, behind Bitcoin. It is a decentralized smart contract blockchain.
Quick Stats
- $2715.99 as of March 10th 01:22 GMT
- 119.89 million circulating supply
- 325.62 billion market cap
Tokenomics
The tokenomics of ethereum don’t impactfully affect this strategy. However, when ethereum shifts from proof of work to proof of stake, the tokenomics will be worth revisiting. EIP-1559, also called the London Hard Fork, went live August 4th 2021. It introduced a base fee and a smaller priority fee. The base fee gets burned, which allows for deflationary properties when ethereum grows larger
**Position & Analysis
**I believe we are entering into a period of high volatility in crypto.
There are bullish catalysts, like the idea of btc being a commodity, and a safe haven in times of inflation. When btc pumped this past bull run, it brought the rest of crypto with it. I believe the days of btc running due to money moving from alts to bitcoin is over. I believe the money that pumps btc will come from the public and institutions fleeing tradfi and other common stores of value (gold @peterschiff). There have also been numerous recent examples of why countries and citizens should look to crypto instead of traditional fiat. Russian citizens' ability to use Visa and Mastercards was blocked. While this is a questionable practice, it should be taken as more of a principle that at any point in time, a centralized power can restrict a person’s spending ability. Crypto is a potential solution to combat the centralized powers controlling your ability to spend. As another example, Canadian citizens who supported the protest were froze out of their banks. Today, Dubai created an independent authority to “oversee the best business environment in the world for virtual assets…” These provide both short and long term bullish catalysts.
However, there are a lot of question marks in the world economy right now, Russia is invading Ukraine, gas prices are skyrocketing, The Fed is meeting March 15-16 with rate hikes expected, and other countries have increased rates as well. In December, both England and Mexico increased interest rates more than was expected.. in other words, they made money more expensive, which leads to a slowed, retracting. In the United States I believe there is a housing bubble. Pandemic Era stimulus ends in March, which was aimed at easing inflation.
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The inverse iron butterfly allows you to be profitable in environments of large price movements in either direction, taking advantage of volatility.
**
**Strategy
Reverse Iron Butterfly
***Sell put at 2000
Buy call at 2500 premium
$311.42 breakeven =$2811.41
Buy put 2500 premium $97.36 breakeven = $2402.63
Sell call 3000
*So why are we executing this strategy? There is capped price potential, and relies on large moves in price. Following my thesis that the macro outlook looks quite chaotic, I believe volatility will ensue. Dopex’s SSOV’s offer the following calls: $2500, $3000, $3500, $4000 and the following puts: $2500, $2200, $2000, $1600.
**Possible Outcomes
**Short Call = Sell a Call
Long Call = Buy a Call
Short Put = Sell Put
Long Put = Buy Put
- Max Profit = Strike Price of Short Call (or Long Put) - Strike Price of Long Call (or Short Put) - Net Premium Paid - Commissions Paid
- Max Loss = Net Premium Paid + Commissions Paid
- Max Loss Occurs When Price of Underlying = Strike Price of Long Call/Put
Worst Case Scenario, you lose premiums paid, $311.42+$97.36 = $408.78.This would happen if eth ended the month at $2500.
Best Case Scenarios are outlined below
- Max Profit = Strike Price of Short Call (or Long Put) - Strike Price of Long Call (or Short Put) - Net Premium Paid
- Max Profit = 3000-2500-311.42= 188.58 (if positive volatility)
- Max Profit = 2500-2000-97.36 = 402.64 (if negative volatility)
*Note, premiums undetermined until end of epoch, which affect the net premium paid, in this case, the 311.42 and 97.36 do not take into account premium collected from selling calls and buying puts.
How likely is each scenario? Due to the difference in call and put premiums, making money on the left side of the butterfly is more likely, since you are looking to cover $97.36 worth of premium, vs $311.42 of premium.
**Disclosures
***I hold spot eth, and normally sell otm covered calls to lightly yield farm. I also don’t want there to be chaos in the world, this is simply an economic model that has potential to capture a profit based on the macro conditions we see today. Peace and love -donuts
https://twitter.com/donuts_itm/status/1502295916442800130*
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Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
Dopex reimburses analyst contributors with a small payout to partially compensate the time spent on research and writing. For questions feel free to jump into our discord (discord.gg/dopex) and chat with the team or analyst contributors directly.
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