We have been holding €392 in our Coinbase account, a portion of the profits from our TerraMatris crypto hedge fund. Periodically, we distribute some of these profits back into the liquidity pool and convert a portion to EUR as a safety asset. While this amount may not seem substantial, it has been sitting idle on Coinbase, and I decided it was time to generate some additional yield.
However, I was concerned about the risk of holding all our assets on a single exchange. To diversify and capitalize on market opportunities, I chose to trade on the Deribit platform. This decision allows us to engage in options trading, providing a potentially lucrative avenue to grow our funds.
Trading Strategy on Deribit
On Deribit, the minimum contract size is 1 ETH, which presents a challenge since our current ETH balance is 0.1733 ETH. This means we will need to utilize leverage to participate in options trading. Unfortunately, this results in a current leverage ratio of over 5x, which I’m not entirely comfortable with.
Despite this risk, I believe it’s possible to grow our portfolio with strategic and smart trades. To keep ourselves motivated and focused, I've devised a simple challenge: to grow our portfolio to 0.25 ETH or the equivalent of €600, whichever comes first.
Setting Goals and Monitoring Progress
- Targeting Portfolio Growth: Our immediate objective is to accumulate enough ETH to reach the 0.25 ETH mark. The plan is to sell naked puts on ETH while collecting premiums that can contribute to this goal. This approach not only offers the potential for growth but also allows us to engage actively with the market.
- Risk Management: While the leverage we’re employing does introduce risk, we’ll be strategic in our trades. Selling options with a Delta under -0.1 is our initial focus, as this minimizes the probability of assignment and helps us retain the premiums we collect.
- Monitoring Market Movements: It’s crucial to stay informed about market fluctuations, as our positions will be sensitive to price changes. If the market moves against us, we are ready to deposit additional ETH to mitigate risks and avoid forced liquidation. This proactive approach will allow us to maintain our positions without significant setbacks.
Exploring Potential Returns
To provide context, let’s analyze the potential returns we could achieve by reaching our goal of 0.25 ETH:
- Initial ETH Holdings: We start with 0.1733 ETH.
- Target ETH Holdings: Our aim is to reach 0.25 ETH.
By strategically selling naked puts and leveraging our positions on Deribit, we can potentially accumulate the remaining ETH needed to achieve our goal. For example, if we successfully sell several put options with favorable premiums, we could achieve our target within a few weeks to a couple of months.
Conclusion
In conclusion, transforming our idle funds from €392 into a more active investment strategy is an exciting challenge. By trading on the Deribit platform, we aim to grow our ETH holdings from 0.1733 ETH to 0.25 ETH or €600, whichever comes first. While leveraging our position presents certain risks, careful management and smart trading can lead us to success. As we embark on this journey, we are committed to keeping our investments sharp, responsive, and profitable. Let’s see where this challenge takes us!