Asset collateralised

In asset collateralized call selling vaults, the asset used for collateral for the option selling will be the respective asset itself. The premium is collected in that respective asset and is auto compounded. For, e.g., In sETH call selling vaults, the asset used as the collateral is sETH. Premium is collected in sUSD and converted to sETH.

Who is this vault for?

Asset collateralized vaults are generally for users who'd like to stack more of that particular asset, regardless of what the value of that asset is. A scenario for the same is described below, Let's say a user is selling one 100% collateralized option of ETH at 2000 sUSD strike when the price is $2000, for a premium of ~ 0.1E(200 sUSD) upfront. At expiry, there are three ways the market can go.

Case 1: ETH spot price moves up

Current Price: 2200 Net Loss:

+0.1E (Premium Upfront ~ 220 sUSD) - 200 sUSD(~0.0909E Option Excersized) = 0.009E (20sUSD) Even though we lost 200 sUSD worth of ETH, our sUSD value for what is left of our initial capital stays relatively about the same as when we started because ETH is also up in value. This is an advantage of asset collateralized vaults!

Case 2: ETH spot price moves down

Current Price: 1800 Net Profit:

+0.1E (Premium Upfront ~ 180 sUSD) - 0E(Since Option is worthless) = +0.1E Here we stacked more ETH; we started with 1ETH collateral and ended up with 0.1E more. Total: 1E + 0.1E = 1.1E(~1980 sUSD) We can see that even though we started with 2000 sUSD and stacked more ETH by selling options, we are still worse off than how we began in sUSD terms. This is because we are paid in sETH, and our premium collected in sETH is also affected by price fluctuations. Here we stacked more ETH; we started with 1ETH collateral and ended up with 0.1E more.

If you want to protect yourself against this kind of situation and prefer to always be up in sUSD terms, when the vault makes a profit, then please refer to sUSD collateralised Vaults.

Case 3: ETH price stays neutral

Current Price: 2000 Net Profit:

+0.1E (Premium Upfront ~ 200 sUSD) - 0 sUSD(Since Option is worthless) = +0.1E Total: 1E (Collateral) + 0.1E = 1.1E(~ 2200 sUSD) In this case, ultimately, we end up more in terms of ETH & Dollars than how we started with.