Suitable when you are moderately bearish or neutral about the underlying
A cash-covered put is a financial strategy wherein USDC is deposited into the vault to sell an out-of-the-money put option. This strategy is considered "covered" because the USDC deposited by the investor acts as a cover to meet the payoff of the option buyer if the put option expires in the money.
It is a great way to generate several percentage points of cash income. The maximum profit potential of a cash-covered put is the premium earned while selling the put option.
A cash-covered put strategy is created by depositing USDC as collateral and then selling put options on the underlying assets such as BTC, ETH or MATIC. Covered puts can be used regularly to add several percentage points of cash income. Regardless of what happens later in the trade, as the put seller, you always get to keep the premium.
Principal Risk: It’s the risk of losing some or all of your investment. If the spot price is below the breakeven price at expiry, investors may lose some portion of their initial investment.
Credit Risk: Cash-covered put vaults are not susceptible to credit risks as the collateral is never lent to the market markers.
Smart Contract Risk: There is a risk of smart contract failure in the underlying vault or the protocols we work with. Olive has undergone an audit by PeckShield to mitigate smart contract risk.
The fee structure consists of a 2% management fee charged on a prorated basis and a 10% performance fee which is charged only if the cycle is profitable.
Suppose you invested 10,000 USDC in the FCN. The management fee is charged annually on a pro-rata basis @ 2%, i.e. 2% / 52 Weeks = 10,000 USDC x 0.02/52 = 3.84 USDC. Suppose the strategy generates 40% APY, meaning 10,000 USDC will become 14,000 USDC. An annual pro-rata performance fee of 10% will be charged on the gains, which is 4,000 GLP x 10%, i.e., 400 USDC.
Therefore, the net gain made by the users is 14,000 - 3.84 - 400 = 13,596.16 USDC, which is ~ 35.96% APY net of fees.
Suppose you invested 10,000 USDC in the ETH cash-covered put vault. Assuming ETH is at $2000, the strike price for the weekly put option is $1400, and the premium is 75 USDC.
The management fee is charged pro-rata annually @ 2%, i.e. 2%/52 Weeks = 10,000 USDC x 0.02/52 = 3.84 USDC. Since the performance fee is only charged when the expiry happens out of the money or the week was profitable, it will equal 75 USDC x 0.1, i.e. 7.5 USDC.
Therefore, the net gain made by the users is 75 - 3.84 - 7.5 = 63.66 USDC, which is ~ 39.09% APY net of fees.