Strategy Vaults on Premia
💡 Strategy Vaults
Users can easily provide liquidity on Premia Blue using automated Strategy Vaults. Depositing assets to a Vault nets users a proportional share of PnL, Premia rewards, and ARB incentives from the Vault.
What Are Vaults Useful For?
Underwriter Vaults automate the process of selling (underwriting) options for yield.
Underwriting options is a way for traders to express their market bias while earning extra income from premiums. For example, if a trader is bullish on WBTC, they have two ways to express their opinion with options:
1. Long Call Options: The trader can purchase WBTC calls in an attempt to profit from price appreciation.
2. Short Put Options: The trader can sell (underwrite) WBTC puts in an attempt to profit from option premiums. They believe the price of WBTC won't fall too much for the sold options to end up losing them money. The Underwriter Vaults automate this process for users, allowing them to consistently earn premiums, Premia OLM
The Covered Call and Cash-Secured Put Vaults automate the latter process for users, allowing them to consistently earn premiums, Premia OLM rewards, and other potential incentives such as ARB.
These vaults are inherently short volatility. This means that if prices move aggressively against the vault strategy, they can end up at a loss, since the shorted options might expire in-the-money.
Covered Call Vaults underwrite call options on the underlying asset on an automated basis. The goal of this strategy is to retain exposure to the underlying asset while generating extra income from premiums. However, if the underlying asset rapidly rises in price, this strategy may incur a loss, since it's based on short call options collateralized by the underlying asset.
Cash-Secured Put Vaults underwrite put options on the underlying asset on an automated basis. The goal of this strategy is to utilize the collateral asset (e.g. USDCe) to generate extra income from premiums. However, if the underlying asset falls in price, this strategy may incur a loss, since it's based on short put options.
Introduction to Vaults
Strategy vaults on Premia are designed to provide liquidity to a specific range of strike prices and expirations with a more predictable risk profile.
Vaults are an easier alternative to range orders. Users can simply deposit liquidity to express their sentiment (bullish/bearish), and the vault will automate a given strategy for them.
Currently, all vaults on Premia are based on shorting volatility by selling options. During times of high upside volatility, the call vaults might incur a loss, whereas the put vaults may lose when the markets are nuking.
All vault strategies will generate yield from multiple sources:
- Vault strategy PnL
- Premia Options Liquidity Mining (OLM) rewards
- Extra rewards and incentives (e.g. ARB).
Potential Risks: The Covered Call Vaults might lose in up-trending market conditions, whereas the Cash-Secured Put Vaults might lose during downtrends.
Using Premia Blue’s Vaults
The process of using Underwriter vaults on Premia Blue is designed to be intuitive and user-friendly, catering both to seasoned traders and those new to options trading.
Here's a step-by-step guide for Vault deposits: start off by navigating to app.premia.blue.
2. Filter by the asset of the Vault you want to deposit to.
3. Click on the Vault you want to deposit in. Users can deposit the underlying asset to the Call Vault, or USDCe to the Put Vault. Traders can use Premia Blue's in-app Swap & Bridge to get the asset they need.
4. Here, you can see how the Vault functions, and its historical performance. Remember that the Call Vault is a bearish strategy, while the Put Vault is a bullish strategy. Next, click "Add" to add liquidity to the Vault.
5. Enter the amount of the underlying asset or USDCe you want to deposit.
6. Approve and Sign the transaction in your wallet, and you're done! Your position is now accruing a proportional share of PnL, PREMIA rewards, and ARB incentives.
Test Yourself!
What benefit do depositors in the Underwriter Vaults on Premia Blue receive?
Share of trading fees, option premiums, PREMIA rewards, and any additional incentives.
A fixed interest rate on deposits.
Exclusive access to high-leverage trading positions.