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An overview of the potential benefits and risks to participating in the Covered Put Spread Strategy

TLDR

How does the Covered Put Spread Strategy work?

A covered put spread is a trading strategy that involves holding the underlying asset as collateral while selling put spreads against it.

The automated Covered Put Spread Strategy consist of three main components:

Why participate in the Covered Put Spread Strategy

What are the risks of the Covered Put Spread Strategy?

Example

Let's take LBTC as an example:

Scenario 1: BTC expires at $60,000

Both the short put options ($56,000 strike) and the long put options ($54,000 strike) expire OTM.

Breakdown:

—> Vault buys 0.25 LBTC with the $15,000 to compound the yield.

—> Vault is up 0.25% in LBTC terms

Scneario 2: BTC expires at $55,900

The short put options ($56,000 strike) expire ITM and the long put options ($54,000 strike) expire OTM.

Breakdown:

—> Vault buys 0.09 LBTC with the $5,000 to compound the yield.

—> Vault is up 0.09% in LBTC terms

Scenario 3: BTC expires at $55,500

The short put options ($56,000 strike) expire ITM and the long put options ($54,000 strike) expire OTM.

Breakdown:

—> Vault sells 0.63 LBTC to clear the $35,000 debt.

—> Vault is down 0.63% in LBTC terms

Scenario 4: BTC expires at $52,000

Both the short put options ($56,000 strike) and the long put options ($54,000 strike) expire ITM.

Breakdown:

—> Vault sells 3.56 LBTC to clear the $185,000 debt.

—> Vault is down 3.56% in LBTC terms