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Is selling crypto options for yield an attractive strategy?
With the rapid growth of DeFi Option Vaults (DOVs), you may be wondering whether this is an attractive risk-reward strategy to generate income. A thread (1/9)
With the rapid growth of DeFi Option Vaults (DOVs), you may be wondering whether this is an attractive risk-reward strategy to generate income. A thread (1/9)
In TradFi, selling volatility or options is a common strategy used by funds to generate yield. When investors use a recurring options selling strategy (similar to what DOVs offer in crypto), they are trying to harvest what is known as the volatility risk premium (VRP).
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VRP is the extra compensation options sellers earn for providing protection to option buyers. It is similar to insurance premiums. If car insurance companies only charge for the expected loss of you getting into an accident, they wouldn’t make any money!
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