《Twitter🧵》
1/8
Did you buy the 1st round of Atlantic Straddles（AS）? If you did, congrats, ETH⏫15%🥳You're going to win big!
However, there was confusion about whether the LPs were going to lose $🤔
I was wrong about it too😅
Explore AS with me👇
2/8
The most frequently asked question is:
🧐If there were winners then someone else must be losing $, right?
⚡Not in this case!
Thanks to @Halko500k for the article clarifying how the LP side operates👇
3/8
If you're a visual learner like myself, here are some visuals
Assume ETH Spot price = $1500 ；Both buyer + LP supply in $USDC
Buyer buys 1 AS and receives 1 ETH AP(Atlantic Puts) back, then uses 1/2 to buy 0.5 ETH, so essentially
🔸Buyer's position = 0.5ETH Call + 0.5ETH Put
4/8
Now the LP side
LP supplies USDC collateral to sell AP (Atlantic Puts) only
🔸LP's position = 1 Short AP + Premium + Interest from lending out 1/2 of AP
5/8
What happens when there's huge volatility during the 3 day epoch?
Imagine 2 scenarios:
1️⃣ETH to🚀$2000
🔸Buyer's position: ⏫$250 from 0.5ETH Call (minus $premium & interest from borrowing)
🔸LP's position: ⏫$premium & interest from lending
6/8
2️⃣ETH📉to $1300
🔸Buyer's position: ⏫$100 from 0.5 ETH Put (minus $premium & interest from borrowing)
🔸LP's position: 🔻$200 from 1 AP (still earns $premium & interest from lending)
7/8
As we can see, because LPs sell Puts, LPs are exposed to 📉downside risks.
💡However, LPs will always earn💰$premium & lending interest. This will help offset some of the risks.
8/8
If you are an LP and want to protect your downside, @Halko500k's article explains how you can hedge with OTM puts and perps.
Personally I would love a ✨one-click hedge tool which hopefully already is in the works by the brilliant @dopex_io team!