Welcome to the forum @chudnovglavniy. Really appreciate your added comments and especially so the numbers you’ve run on this trade – very helpful!
As much as appreciate the insight you’re adding here, your comment does not mention that there is a downside risk to this strategy and, that it might be misleading to the observers who as you put it, are “unfamiliar with covered calls”.
In fact, options as an instrument, do not have “yield” – options have profits and losses, just similar to any other derivative or trading instrument.
Just wanted to point this out in case the mention of “yield” and not bringing up the risk might cause some to think of this as sort of a yield farming strategy which it certainly is not – this is a trade and we should frame it as such.
That being said, as it stands right now, I am not for or against the proposal and still thinking to formulate my thoughts around it. Will loop back with my thoughts soon.
For the record, I am not opposed to experimenting with these sort of strategies but I don’t want to put 10%+ of our treasury on the line to do so. It’s my understanding that the strategy isn’t any more capital efficient at scale (ignoring gas costs) so why not start smaller? We can always scale up if the strategy is working. I also think more research should be done in regards to the controllable parameters. As mentioned by others, this should be treated as a trade more than a yield earning strategy and for that reason I think we should have some quantitative data on the topic.
I am still against the proposal as originally written but I would not be opposed to considering revisions that include more detail on the decisions made (with data). However, I don’t think we will see these changes being made prior to it going to snapshot so I will be voting against this proposal should it go to snapshot in its current state. We should not commit so much to these strategies unless the data is overwhelmingly convincing, and I personally don’t think this is the case yet.
First of all, this is a solid proposal by @solarcurve and seems to have taken quite a bit of time to line it up before the proposal – big thanks and major props. It’s especially worthy of praise given the timing of treasury needs and Solar/Treasury subDAO’s proactiveness.
Secondarily, the quality of discussion and participation has been phenomenal and I hope it continues this track.
My humble thoughts: under more specific terms, I am for allocation of some treasury capital for some period for the purposes of generating income via writing calls.
How to proceed
At its current form, this rather a request for comment (RFC) than a proposal since the specifications are unknown and the post is rather asking forum to discuss in order to flesh out the specifications.
As such, I suggest that we run a series of forum polls in order to come to consensus around what the specs of the actual proposal to Snapshot would be.
For that I’d suggest polling on:
Should we allocate treasury funds to a call writing options strategy for additional income? (binary)
How much capital (in BAL) should we allocate to this strategy (range)
Should the details of the strategy, such as the target strike price be left to the treasury subDAO to decide (options: vote on lower bound, leave completely to Treasury, vote on exact strike price)
What should be the duration of this allocation (indefinite until a counter proposal vetos the allocation, trial phase that would extend to option 1 if metrics/conditions are hit, only a trial phase)
I propose that we evaluate the polls softly, based on reputation and/or domain knowledge of the participants rather than sheer numbers.
In the meantime, the Treasury subDAO should perhaps put forth a set of internal guidelines that they’ll be using for managing this strategy, some of which might need input from the poll.
I suggest that we then use the results of the poll in tandem with guidelines put forth by Treasury to craft the final proposal.
If you want to run polls, you are welcome to make polls.
I don’t support any management of this strategy by the Treasury subDAO. One nice feature of Ribbon is strike prices are chosen automatically. I am against injecting human bias into this equation as I see no reason to think that is +EV.
This is a simple “Allocate 500k BAL to a Ribbon vault to sell call options every month 25% out of the money using cash settlement”. I’ve seen nothing in the discussion to indicate a change to my base case I outlined in the OP.
Anyone is free to take this up and continue down the path suggested by Long Juan. It just won’t be me as I’ve done all the work I plan to do for this.
Apologies, I assumed that you brought up the possibility of 25% vs 50% and 500k BAL vs 250k BAL for discussion. Seems like that’s not up for discussion and the proposal is to move 500k for 25% indefinitely? It would bring up the question of why mention options if options aren’t to be decided on.
The downside of not doing a temperature checks is that if the vote fails, we won’t know if voters were categorically against it or there were specifics they did not agree with (a case all too familiar with the Hexagon vote).
It is up for discussion. Reading the replies, I see Xeonus suggesting it but saying he’s slightly in favor as written. Mike B is against but suggests a lower amount (unclear if this change would get him to vote yes). You also I guess suggest a lower amount but again, unclear if you would vote yes if that change was made.
If this is not an accurate summary then I welcome those involved to clarify their positions.
Although your summary may be accurate, the method of summarizing vs simply polling might not be as efficient. The least it’ll do is allow you to see others who are participating in the discussion think about the parameters aside from the individuals you mentioned.
Polling and temperature checks are common practice, perhaps because they have proven to be helpful. Otherwise, I do not suggest the imposition for the sake of doing so.
@chudnovglavniy, glad to see you here, I am also a governance lurker and voter on Ribbon.
Two questions for you:
As suggested by @zekraken, would it be possible to setup a vault that execute a bear call spread strategy instead of a simple covered call strat (i.e. simultaneously selling a call and purchase another call with a higher strike price) and setting the parameters in a way cap our capital loss per round at let’s say 10% [TBD]? If so, can you provide similar historical strategy P&Ls for such a strategy at a 5%/7.5%/10% max capital loss per round.
Could we use weekly call instead of monthly? That would allow the treasury team more flexibility to pause the strategy if the view on the market change.
We are working on credit spreads, but it is not production ready yet.
We can do weekly instead of monthly. All of our retail vaults are weekly. But we did the math and found that monthly expiry aligns better with treasury strategy (unlike retail participants). Yes it would allow more flexibility, but monthly allows for further out of the money strikes where weekly unsustained rallies don’t make a difference.
The more stakeholders vote, the better. I also think a move away from „take it or leave it“ votes is a great improvement, meaning vote options will give us more flexibility to find common ground
Please see the below poll which will inform the voting choices on snapshot. Depending on how skewed the results are, 1-3 options might be included in the vote. I’ll ask the Governance Council to include this in the round that goes out on June 30th. Cheers.
Given that the Treasury BAL has increased by 1.9m BAL, I think it’s good to give this strategy a go starting with 3.5% of Treasury’s BAL and scaling it up to 5-6% if the outcome was favorable.
I think the idea is great in theory, on board with the 200k BAL myself. If we are liking the results in a quarter or some length of time after, revisiting to increase our position could also be feasible. If there is a flaw in injecting more funds in that short of a period of time someone please highlight that for us / me please.
There is no flaw, I would only point out that past performance is in no way indicative of future results. When you say “if we like the results we’d increase” I don’t understand that logic really. If anything I’d argue the opposite should be the case - if we see a string of poor results, like Jan → May '21 for example, that would be a sign to increase exposure to this strategy anticipating a reversion to the mean in returns.
Either way, whether one believes increasing exposure after positive results or increasing after negative results, this is a purely subjective bias. Proving otherwise (that one way or the other is +EV long term) will be incredibly difficult.
