Common questions that potential clients would have about Option Vaults.
1. What is the risk-reward profile for Option Vaults?
Low-medium risk. In essence, Option Vaults is a short-term income-generating investment with higher yields than alternative fixed-income products such as locked savings, peer-to-peer lending, or fixed-income mutual funds.
The common risks are:
- Locked funds: Albeit a short tenor, once invested, investments cannot be revoked and will only be returned with interest at maturity.
- Conversion risk: Buy low vaults could convert your fiat to crypto or sell high vaults could convert your crypto to fiat if crossing the strike price by maturity
As with any financial investment, there is a risk of the underlying assets (i.e. BTC or ETH) going to zero during the time your funds are locked, making your investment worthless.
The rewards typically can range from 8% to >100% in annualized yield. The closer the market price is to the selected strike price at the time of subscription, the higher the APR would be but also the risk of conversion.
2. Whether you’re getting converted or not, you still get yield from option vaults. Is it too good to be true?
Yes, it is true that both end results will grant you yield, but remember that there is an opportunity cost of conversion. For example, if you entered a buy-low BTC vault and the market price is below the strike price at maturity, your USDT got converted into BTC and you earned yield in BTC. Meanwhile, if the BTC market price is a lot lower than the strike price, you will buy BTC for a price higher than the market price.
Then again, this is all probability. If you are less willing to have your USDT converted, then you can select a strike price that is significantly lower than the market price to make sure your position is safer from conversion.
3. What if I don’t have any crypto and I am interested in getting Option Vaults’ yield, can I deposit IDR instead?
Yes, this is where we can help you. You just need to deposit your IDR with us and we handle any necessary conversion for you. When you would like to stop subscribing to option vaults with us, we can return your funds in IDR back to your bank account, all without the need for you to manage crypto assets. Let us take care of it.
4. The yield is a lot higher than alternative investments, how do I know that this is sustainable and not just a scam or Ponzi scheme?
The way option vaults work is by selling options contracts to options buyers. Options contracts have a premium, the premium that is generated by the option seller is what powered the yield. The premium price is higher given more time to expiration or greater implied volatility, hence the yield.
5. Why would anyone want to buy options?
Lots of reasons! The main one being that buying options provide limited downside with unlimited upside potential. Active traders are also able to hedge against a bearish market or unprecedented price changes in a volatile market by purchasing put options that bet against their current SPOT portfolio and selling the puts when they turn a profit. Options are also leveraged, allowing investors to multiply their profits as opposed to purchasing the same currency on SPOT. Seasoned option traders will also use volatility to their advantage, buying options when volatility is low and selling them when volatility is high.
However, the riskier the option (i.e. being at-the-money or in-the-money, closer to expiration, and high in volatility), the higher the premiums will be to purchase the options since the potential profits are also much higher (compared to less risky options). Buying options also requires the trader to time the market for their exit, as options’ premiums decrease in value over time. Meaning that even if the underlying asset’s price remains the same, the option’s extrinsic value decreases over time, this is referred to as theta decay.
On the other hand, selling options allows investors to take a backseat, earning yield from traders who are willing to purchase options at said premium and not have to worry about short term price fluctuations.
6. In what currency will interest be paid?
It will depend on whether the market price of the underlying asset is above or below the strike price.
For buy low products, if the asset’s price is:
For sell high products, if the asset’s price is:
7. What happens if the price of the underlying asset crosses above/below the strike price before maturity?
Nothing happens! The relationship between market price and strike price only matters at maturity, any price action that occurs before or after that will not affect or change:
8. Will the estimated interest received change throughout the investment period?
No, it will not. The moment you invest in the option vault, the premiums including the yield you receive are locked and do not fluctuate. This is because of the way that underwriting options work.
In more technical terms, the interest rate continuously fluctuates based on market conditions; however, the rates are locked in the moment the option is sold i.e. when you invest in an option vault, thus guaranteeing you your yield.
9. How do I pick between BTC or ETH underlying structured products?
There is no right or wrong answer, it depends more on your investment goals:
Hopefully these questions can help to guide your investment decisions.
10. How long have structured products been around?
Structured products have been around for decades in traditional finance markets, and have since grown to a very mature and complex market. Now, the most tried and tested structured product in traditional finance (cash-covered puts and covered calls) is available for you to invest in in the form of option vaults.
11. Why crypto and not other asset classes?
Crypto compared to other asset classes such as equities, notes and even real assets is still a nascent market that is growing month by month. Long-term investors in the space have seen tremendous and continuous growth, and new investors with long-term time horizons can still see large returns as the market capitalization of the entire space is small compared to traditional markets (total crypto market cap is $1T, whereas the US stock market is upwards of $45T).
This small market cap also allows crypto investors to benefit from volatility. Structured products in traditional finance have existed since the 1990s, having stood the test of time, they are now more mature and stable. Unfortunately, that reduces the potential profits derived from these already low risk investments. Though in crypto’s volatile landscape, the opposite is true. Investors can receive high, stable yields from the market with low risk by investing in structured products.
Even if a client is a traditional investor that is hesitant to invest in risky assets, we can tailor the product to the client’s risk profile such that their downside risk is hedged, while allowing them to invest using their fiat currency. More on this in FAQ #3.
12. I’ve invested in OVs once already, how can I continue to grow my wealth with it?
Upon the maturity of your Option Vault, we will reach out to you to ask if you would like to re-invest your principal. As crypto prices move constantly, we will update you on the day on recommended strike prices for the following Option Vault investment. Investing week-on-week allows you to compound your investments, growing your digital asset wealth quicker as opposed to locking it up for a longer period of time at a time.
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