Option Vaults — Automated Options Strategies

What is a covered call strategy?

Visualizing the payoff diagram of a covered call

Strike Selection and Expiry

Technical Architecture

  1. Selecting the parameters of the oToken to mint i.e. strike price and expiry.
  2. Signing oToken sales OTC on behalf of the Theta Vault
  1. Theta Vault mints oTokens
    a) The manager selects an oToken to mint based on the parameters of strike price and expiry.
    b) Vault uses deposited funds to lock collateral into Opyn protocol
    c) Vault mints oToken and holds onto these oTokens
  2. Initiating oToken trade
    a) Manager and market makers decide on a price to sell the oTokens for (off-chain)
    b) Manager signs an Airswap order that exchanges the oTokens for WETH on behalf of the Theta Vault
    b) Manager sends the signed order to a market maker (off-chain)
  3. Completing oToken trade
    a) Market maker counter-signs the order and posts the trade on the blockchain
    b) The swap is completed, Vault receives premium in WETH whereas the market maker receives the oTokens

Progressive Decentralization

  • Managers have sole discretion over strike selection
  • Managers and selected market makers decide on option prices off-chain (OTC).
  • We have whitelisted specific market makers who we are partnering with
  • We plan to decentralize the function of the manager to a group of strategists that are voted on by the community, including better incentive mechanisms for encouraging good management of the vault
  • We plan to open up the option buying function to anyone in the community through an auction-like mechanism, and remove whitelists

Conclusion

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