The Biggest Covered Call Trade in MYSO History: A Deep Dive
We’re thrilled to announce the largest covered call trade in MYSO’s history! This landmark transaction involved a covered call for 117k PENDLE, valued at approximately $540k USDC at the time of trade inception. The covered call was structured with a 120% strike price (or in absolute terms, $5.5266) and a 14-day tenor, offering an attractive upfront premium of 2.29%. In absolute terms, this allowed the user to earn $12,420 in upfront premium by leveraging their PENDLE tokens for the covered call writing strategy, with an impressive annualized APY of 59%. You can see the transaction here.
How Did the Process Work?
The prospect approached us for quotes on PENDLE covered calls. Using our in-house pricer, we could present realistically achievable quotes across various strike and tenor combinations. At the time, our pricer showed the following matrix.
The prospect decided to focus on the 14-day, 120% strike combination with a 1.56% indicative premium or 40% indicative APY, which piqued their interest. We then reached out to the institutional trading firms already onboarded to MYSO v2 to request firm quotes. While our internal pricer was close, the trading firm provided an even more attractive offer, with an upfront premium of 2.29%. We circled back to the prospect, informed them about the tradeable quote, and provided details with a Google helper spreadsheet to assist in filling out the on-chain loan offer.
Coordination on an execution time frame was key to minimizing the time delay between on-chain offer creation and the trading firm consuming the quote. Since the prospect already had a vault created, they could fund the vault immediately. As we neared the target execution time window, the user created the on-chain offer, we informed the trading firm, and the trade was executed — fully on-chain and transparently, without counterparty risk or paperwork. If this doesn’t get you excited about the potential of DeFi, nothing will!
What Happens Next?
The outcome of the covered call trade will depend on whether PENDLE will be above or below the strike price of $5.5266 in 14 days. If PENDLE exceeds the strike price, the user will receive the conversion amount of $649,725 USDC. Otherwise, the user will receive the original 117,663 PENDLE tokens back, allowing them to continue by writing another covered call.
You might wonder how this strategy would have performed historically. We conducted a backtest to explore this. We backtested an option wheel strategy on PENDLE where a user would use $1m in PENDLE to write covered calls and, once converted, switch to writing cash-secured puts. The results are quite appealing. While holding the underlying asset might have outperformed this strategy, it’s important to note that the volatility for the option wheel strategy was significantly lower.
+------------------------+----------------------+--------------+----------------+-----------------------------+-----------------+---------------+----------------------+--------------+
| Strategy | Total Position Value | Put Premiums | Put Cash Yield | Put Und. Conversion Amounts | Call Und. Value | Call Premiums | Call Cash Conversion | Sharpe Ratio |
+------------------------+----------------------+--------------+----------------+-----------------------------+-----------------+---------------+----------------------+--------------+
| pendle put-90 call-110 | 1,692,343.57 | 633,160.95 | 81,329.77 | 4,589,681.01 | 0.00 | 116,729.37 | 5,031,790.04 | 133.23% |
| pendle put-85 call-114 | 1,700,125.78 | 378,556.82 | 80,942.65 | 2,118,417.13 | 1,101,210.07 | 139,416.24 | 2,362,086.54 | 119.69% |
| pendle put-80 call-120 | 1,430,581.30 | 211,190.14 | 89,420.59 | 436,715.65 | 1,096,238.56 | 33,732.02 | 1,104,408.05 | 102.29% |
| pendle put-75 call-125 | 1,528,188.57 | 110,161.49 | 90,832.61 | 494,069.17 | 1,299,245.70 | 27,948.77 | 1,227,120.05 | 116.43% |
| pendle put-70 call-130 | 1,149,699.09 | 53,808.67 | 95,890.41 | 0.00 | 0.00 | 0.00 | 0.00 | 317.31% |
+------------------------+----------------------+--------------+----------------+-----------------------------+-----------------+---------------+----------------------+--------------+Interested in a Bespoke Covered Call?
If you’re interested in exploring bespoke covered call options, please don’t hesitate to reach out to us. Our mission is to help users navigate on-chain structured products and provide tailor-made structures that fit their individual needs.
