The global cryptocurrency wealth management platform, Flynt Finance based in Singapore has unveiled a strategy to earn a high yield of up to 25% capitalizing on the inefficiencies in Ethereum options markets. The ETH product is similar to their previous hit strategy, the Bitcoin Covered Call x5 strategy, consistently generating approximately 50% APY.
Options Market Inefficiency
As the crypto bear market continues, price uncertainties have made it difficult for traders to predict price direction. Especially seeing recent bitcoin volatilities hitting its 27-month-lows, many institutional and retail traders are diversifying their trade strategies through cryptocurrency options to capture profits in the choppy environment. Furthermore, options trading volume has increased significantly as Decentralized Option Vaults (DOVs) came into play. At peak, a single platform was selling $300M in call options each week.
Under current conditions, due to the repetitive nature of the concentrated sell-side pressure from DOV products, the price of options falls sharply around the time of expiry.
Recent research by OrBit Markets, an exotic derivatives desk, which analyzed the implied volatility (IV) of a 1-week timeframe for ETH-USD illustrated extremely low levels of IV between 6 am to 3 pm UTC. The IV accounts as an important factor in pricing options. Lower IV means lower option prices and as for DOVs which sell options, they need higher IV to attain higher APYs. This hints at an inefficiency in the market due to the emergence of large DOVs writing covered call options each week at the same time.
Flynt Finance Takes Advantage of the Market Inefficiency
The general procedure for the covered calls strategy is selling covered calls that expire in 7 days. However, as this is a rolling strategy, the trade can only be made once the settlement takes place – usually at 8 am UTC Friday. Flynt Finance is introducing a unique strategy that not only systematically sells far out-of-the-money weekly call options and auto-compounds the premium every week, but also produces additional premiums by monitoring option prices and taking shorter-term positions when options are considered overpriced.
Flynt Finance’s Head of Quant Research, 0xTinkerer says “the call option writing for digital assets has increased significantly over the last year and the options market is still in its infancy. There are multiple opportunities in the market as it matures and Flynt will be focusing on taking advantage of this gap.”
The transparency of Flynt’s strategies has taken the industry’s standards to the next level to the point where clients can see every single trade detail of the product. This has also enhanced trust in the financial service resulting in weekly transacted volumes of $2M in just two months from launch.