Thread by @dopeboyshanee

Long-term bullish on $LUNA, but indecisive of its short-term direction?

OPTIONS would be an excellent addition to generating income while the market moves sideways.

A Thread🧵

1/ The two platforms currently supporting Options for $LUNA are @friktion_labs and @Katana_HQ, both on Solana.

Friktion offers two options strategies for $LUNA–Covered Calls and Cash secured puts, while Katana only offers Covered Calls for LUNA

2/ WTF are covered calls and cash-secured puts?

Let's see 👇

3/ First of all, you don't need to know the nitty-gritty of options here. Both are structured into a simple vault where the only thing you need to do is deposit $LUNA.

Let's look at an example of Covered Calls ⏬

4/ Suppose you deposit 1 LUNA into the LUNA Covered Call Vault on Katana.

There will be a 'Strike Price'

In this case, the strike price is $92 and the current price of Luna is $86

5/ Each vault will also have an expiry date. Presently, each vault will expire weekly(on Friday, 8am UTC)

Suppose LUNA price reaches $100 before or at Expiry.

In that case, the Options will get exercised/executed

6/ What does that mean?

It means that your LUNA is sold at a 'strike price' of $92

So, we lost (100 -92) = $8.

The $92 is converted to LUNA.

92 /100 = 0.92 LUNA

7/ In dollar terms, we had $86 (the price of 1 LUNA in the beginning)

Now we have a $92 plus Yield.

What Yield? 👇

8/ For LUNA to be sold at $92, the buyer had to pay a 'premium' for the right to exercise(buy) it. That premium is the Yield we obtain, represented as 'projected APY' in the vault.

9/ The APY is derived from a time-weighted average of all previous rounds, and since it's only been around for a few weeks, the APYs can be extrapolated.

So as more epochs come along, the APY's will be updated to give a more reflective view of performance.

10/ Note: Yields are driven entirely based on market conditions and volatility - and not from token emissions seen in yield farming

So in dollar terms, we gained 92-86= $6 plus Yield. The Yield will be in the deposited asset, which is LUNA in this case.

11/ In Luna terms we lost 1-0.92= 0.08 LUNA.

The loss is unlimited because we don't have exposure to LUNA once it's sold off at $92. But since it's weekly, the chances of LUNA mooning hard are low.

12/ If $LUNA price doesn’t reach $100 before or at Expiry, the option expires worthless and you keep the yield!

Now let's look at an example of cash-secured puts for LUNA in Friktion👇👇

13/ Instead of depositing LUNA, we deposit $UST, say $100.

There will be a 'Strike Price.'

Let's say the strike price is $70 and the current price of Luna is $86

14/ Each vault will have a weekly expiry date, as mentioned before.

Suppose LUNA price reaches $70 at Expiry, the Options will get exercised.

What does that mean? 👇

15/ It means we purchased LUNA for the strike price of $70.

Now we have 100/ 70 = 1.42 LUNA.

But wait, we also get Yield for providing that option to the seller. Suppose the Yield is 10%(just for calculation) of the deposited amount, i.e., $10.

16/ So now we have $80 worth of LUNA = 1.42 + 0.14 = 1.56 LUNA.

Thus, the premium you receive allows you to lower your overall purchase price if you get assigned the shares.

17/ In both cases, the Yield is auto-compounded and used for the next round of weekly options unless withdrawn.

Both use the @PsyOptions protocol to mint/create an option in the backend. These options are sold through auction in the OTC market.

18/ Friktion uses European style options, so the options can only be exercised on Expiry.

Katana uses American-style options, so the options can be exercised at any time before or at Expiry.

There's a 10% performance fee and a 0.1% withdrawal fee on Friction
Katana has 0 fee's

19/ You can use @wormholecrypto to bridge LUNA/UST from Terra to Solana.

Make sure to have some $SOL for fee's

20/ Looking forward to see @WSO_Options and @sig_finance on Terra!

For any queries, ask in their discord

Katana: discord.gg/mC7YVhyp
Friktion: discord.gg/eTVhapjx

@CryptoHarry_ @Cephii1 @tlagomi @Shigeo808 @shivsakhuja @Route2FI @GabrielGFoo