How it Works
Last updated
Last updated
The Hermetica stSTXearn strategy runs an automated options strategy that alternates between buying and selling binary calls on STX based on a simple trending following system.
Bull Trends
If price is in a positive trend (above the 5 week moving average), the strategy buys two binary calls:
One at-the-money barrier (50 delta; 1% above spot)
One out-of-the-money barrier (20 delta, 15%-17.5% above spot)
The strategy allocates 1/3 of the capital at risk to the 50 delta and the other 2/3 to the 20 delta. This combination creates a unique payout profile for the strategy as each binary call option serves a distinct, yet complimentary, purpose.
The 50 delta gets hit regularly and thus creates a base yield for the strategy.
The 20 delta, on the other hand, only pays out during large moves and thus creates outsized upside optionality.
You can think of it like this: The 50 delta is a steady yield that keeps the token profitable so it can wait for the large moves where the 20 delta brings in the big returns.
Bear Trends
If price is in a negative trend (below the 5 week moving average), the strategy sells a binary call (33 delta; 7–10% above spot).
Selling binary calls, as opposed to selling vanilla calls, generates yield from premium payments but without tail risk.
No matter how much the STX price rallies the token can only lose a defined amount. In other words, we get yield without becoming Taleb’s Turkey who runs the risk of wipe-out out during a black swan.
Additionally, the token is denominated in stacked STX (stSTX) which means it accrues yield from staking on top of yield from the trading strategy.
