ETH - 27 June 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.
Without further ado let’s jump into our next article.
A Breath Of Fresh Air For ETH**
By: BowTiedProngHorn
Token & Position Introduction
After a rough crash in the spring prices have remained quite flat throughout most of June and July. With the bankruptcy of 3AC, looming recession, and general economic uncertainty it has been a rough month for the crypto markets. Luckily, the old adage rings more true than ever: crisis is another word for opportunity. Followers of the previous ETH analysis will have collected a nice premium from selling call options through dopex.io. Today we will go through further strategies to juice your returns through the rough market conditions we are facing.
Quick Stats (at time of writing)
- Price: $1,605
- Marked cap: $191,309,423,198
- Circulating supply: 119,814,038 ETH
Tokenomics
ETH is the utility token for the Ethereum network. All interactions with the Ethereum network must be paid for with ETH. This makes it an essential building block for the infrastructure of crypto and DeFi. Coming soon (estimated August 2022) the famous ETH merge will move the network from proof-of-work to proof-of-stake. This will be an important catalyst for the price of ETH. A successful or unsuccessful merge will have a huge impact on the future of how the Ethereum network functions.
Position & Analysis
The markets have recovered slightly over the past month. Ethereum is up over 50% from it’s lowest point in June and Bitcoin about 20%. Followers of last month's article about ETH have made a nice premium selling call options. We’ve earned some nice $DPX tokens selling call options which are up an additional 80%. Overall things appear optimistic for DeFi. The crash has shown us that DeFi continues to work even in rough markets. Now more than ever, protocols such as Dopex are showing their worth by functioning as they should in even the most turbulent market conditions.
At the moment, the focal point for $ETH is the merger which is planned for August 2022. The success or failure of this merger will likely be critical for the future (and price action) of $ETH. Given that we spent the past month selling call options (speculating on a decline in volatility), we may want to change our strategy going forward. Today we will look at two separate strategies for playing the merger: buying options speculating on sharp price movements through the merger or selling put options to play it safer and take some risk off the table.
Strategy
If you believe the merger will have a large impact on the price action of ETH then that will generally mean one thing: volatility.
Source: https://optionalpha.com/blog/straddle-option-strategy-profiting-from-big-moves
With this strategy we choose a range for the price of $ETH and buy call options at the top of that range and put options at the bottom. As long as the stock moves outside that range we will make money. For example, at the time of writing you can buy a call option for ETH with a strike of $1,600 for roughly $81. This gives us a breakeven price for ETH of $1,681 at the time of expiry. If we combine this with put options for ETH (which cost $82) we have a breakeven price for eth at $1,518 on the put option. If you factor in the cost for both options we end up with a breakeven price at both $1,437 and $1,763. As long as the price of ETH ends somewhere outside this range we make money on this strategy, whether the merger succeeds or not.
Long straddles are a great way to trade through events like these where we know there will be an impact on the price but we do not know in which direction. However, an alternative is to play things a bit safer. If you are long ETH but want to take some profits here, you may want to make some money on a potential dip by selling put options.
This strategy, of writing puts, is a great way for investors to actively participate in markets while waiting to buy. Thanks to Dopex, investors are able to issue puts and make money for submitting a buy order for ETH. Sadly, submitting buy orders for crypto assets such as ETH is nearly impossible (at the moment) with DEX’s. Instead of waiting and praying investors can also sell put options through Dopex to achieve the same result (and collect a premium in the process).
The basic premise behind this strategy is to take some risk off the table by selling some ETH for 2CRV. Then, using the 2CRV, the investor buys put options for a given strike price. In the event that the price remains flat or goes up during the merger, the investor will make money on the premiums from selling put options and any profits from holding ETH. On the other hand, if the price of ETH drops the put options will be exercised, allowing the investor to buy cheap ETH.
Possible Outcomes
Base Case Scenario: The base case scenario is that ETH remains relatively flat with some price action throughout the merger. This allows the investor to take some profits on time and collect nice profits through the Dopex platform.
Bad Case: The worst case scenario for the investor involves losing money in all the wrong directions. The investor buys a straddle and the price barely moves through the merger. Or the investor sells puts and the price of ETH crashes, only to never recover.
Good Case: The best case scenario involves a stern increase in volatility. Either the investor buys the straddle and the price of ETH makes a huge move (up or down). Or the investor sells puts and gets to buy cheap ETH while markets are uncertain, collect premiums, and watch the price recover.
Contact and Q&A
If you have any questions or feedback feel free to message me on twitter @BowtiedProngHrn.
I also have a free substack where I write articles helping software developers get started as web and web3 developers.
Disclosures
I currently hold ETH and DPX. This is not financial advice, I am just a stranger on the internet.
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About Dopex
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