Thread by @duganist

Ok so on this feed I've talked at length about:

Synth. cash position (swaps hedge) vs. synth bills (futures hedge)

Long/short futures curve

Calendar and Vertical option spreads

The merits of simply HODLing

But one position I haven't delved into, is secure borrow combos...

I should charge a company in the space a few hundred bucks to write them a nice blog post, but, here's a mini-thread:

Borrow + buy synth. cash - Interest arb. Lenders charging Fed+1-4% make this viable.

Borrow + buy coin - simple margin spot deal with tighter liq. price.

Borrow + spend - this is tantamount to opening a futures contract with the same expiration as the maturity of the loan at a premium with equal cost as the interest, and selling that amount of BTC.

Borrow BTC with USD collateral - great for arbing swaps/futures at discounts.

Borrow + options - ok now we are talking:

Borrowed Covered Call - sell twice as many calls! Similar to buying a future with identical tenor/cost-of-capital and selling 1.8x calls.

Borrowed Calendar Collar - interesting, but also, similar to buying a Put Calendar 1.8x.

My conclusion is that secured loans are good for spending, that's their unique selling point, or acquiring legacy assets that are less correlated, combined with collars so you have money to top-up the loan if the market drops. Otherwise, a future with an overly tight stop.

The other unique selling point of loans, ok, I could take 1 BTC, borrow 0.8 BTC worth of USD against it, take that 0.8 BTC and post it for a 2nd loan, and so on, until I'm holding 5 BTC across my portfolio. Probably by ~4 in hock and 0.3 in loose margin, I go to the exchange then

use Option Portfolio Margin.

I take that small fraction of a coin and I put it into the debit end of a spread, or portfolio of spreads, I'm short Theta now but get longer Theta from all the Call Calendars. Oooh, I can even beat the vig on the loans. Wowww. Amazing...

Calendars and Verticals (in some combo, they are good for opposite things, thus in combo, you have a bit of momo on your side, a bit of time on your side) are a form of leverage based on how cheap the IV is and also if you can scale into the spreads and get the debit lower.

A debit of 0.02 permits leverage of 50x

0.025 is 40x, 0.04 is 25x, 0.1 is 10x.

Most longest-term Calendars cost about 0.065 at IV ~100, for a 100% strike.

Portfolio margin also allows selling far OTM puts, long-dated ideally.

Instead of buying expensive Puts ATM to hedge your 4 BTC principal, you don't care much about it, the lenders have OTM puts at your 80% LTV threshold, let them deal with it. They'll just sell your coins anyway. No liquidation penalty? That's a volatility arb.

If you get ~0.115 for an 8 month Put that is 40% lower, you can sell 1.4x notional relative to the amount of BTC notional you have hedged at this level. So in this ex. you'd sell 2.5 Puts, get 0.2825, reducing total debit to ~0.0165, hedge the 0.28 it's worth ~0.52 at strike.

So in the scenario that everything goes to holy heck, you are hurting, but not *so* badly. Your loans are toast, you're down slightly on premium, you're 5x short Puts, bud, it's not your day. But you don't necessarily get liquidated. So there's that.

In conclusion, I'd probably not be a loan user myself unless it was to fund interest rate arb, either borrowing BTC to spot-short and buy swaps, or borrowing cash to buy synth. cash and beating the vig as the market rages.

Catalytically, N Bs on the sidelines for this is fuel.

But just to break this down bottom line:

Cash outlay: $7250

Upside: Beat Interest, up in BTC, have 4.6 BTC or so up higher.

Now you could buy 1 BTC, have 4.6 BTC futures position open. Or, plow 30% of your corn into a 4.6 BTC calendars + verts. portfolio. All upsides are nice.

The only thing that's really interesting in all of these strategies, is what does the downside look like. I don't mind any of the universes where I'm comfortable, tell me about that discomfort. Iron Maiden, rack or waterboarding? I'll take the Waterboarding sir.

Ok, 4.6 BTC futures, you're long at $7250, at ~5800 handle you're Liq'd. Lose $7250. At 100k, profit $519400.

Same option portfolio with just your coin: lose 20% of your coin on a drop to the 5800 level, at 100k, profit will be ~98-110k if you did ok with rolling the calendars.

Now, the loan extravaganza:

At 5750 your lender(s) liquidate, you have lost 80%.

Ok let's buy those Puts! Cut call notional in half, hedge the 4 BTC. Net theta to start, theta moves up with market, also moves up with a crash.

This is a better portfolio. Depending on any covered calls on the 4 BTC, maybe the Puts net out. Then it's about the Calendars for beating the interest.

This portfolio is interesting. If BTC crashes to 4k (short Put strike) you are holding ~1.85 BTC at expiry, so break even.

What if you just bought 5.6 BTC in 0 cost collars with your 1 BTC, plus long-calendars, you'd be down 80% of the calendar debits at 4k, the spread expires at 4k or lower it's worth ~18200 or 4.55 BTC. Without selling 4.6 calls the net-debit on all those Put spreads is ~0.5.

So doing it by yourself you're just leveraging the volatility, you bleed a lot of theta and lose 50% in some months if the market goes sideways. With the serial loans you have the BTC on contingency and call sell the OTM calls to flatten this. If you just do the 1 costless collar

then buy the calendar portfolio, then sell 1 Put spread at 4k/3 to flatten the costs, you ~break-even 50% lower, @ 3k you lose $1000 plus some of the calendar debit that remained. But the upside is <checks notes> a lot. Maybe stacking loans + options is cool for some cowboys.