🚀Vol-Taking

"And you Take what you get and you turn it into Impermanent Gain" - Avril Lavigne

Volatility Taking is a new primitive that let's you easily bet on volatility. It is effectively the opposite of Liquidity Providing. You pay a funding rate in return for asymmetric upside. Like an option, vol-taking has unlimited upside and a limited downside.

How It Works

Vol-taking is a thin user interface over liquidity taking (see Automated Market Taking). A bullish vol-taker is simply a TakerCall, a bearish vol-taker is a TakerPut, and delta-neutral vol-taking is a balance of bother types of Takers. Each of these Taker setups are then combined with collateral to create a Vol-Taking position. The collateral is sized accordingly so the desired leverage is achieved.

How To Use Vol-Taking

By simply choosing the desired leverage and the Taker price range, anyone can bet on volatility.

Select Taking Range

This selects Taker the "strike range". When the vol-taking position is in this range, it is "in-the-money" meaning the underlying Takers have positive value. But the Takers are also actively paying the "in-range" yield of the Makers. Meaning they have to match the swap rate APR and pay the smaller borrow APR. Generally you want the vol-taking position to be in-range as little as possible.

Ideally, users would like the token pair's price to move "past" the Taking Range. Once outside, the funding rate drops to the out-of-range rate which is just the much smaller borrow APR.

If the price goes past this range in the proper direction, the Takers grow significantly in value. For the delta-neutral vol-taker, a price move in either direction causes the position to become more profitable.

Selecting Leverage

Just like using perps, leverage is a multiplier on potential profits. But just like perps, it also multiplies the potential losses. Leverage makes perp positions more likely to be liquidated, but with Vol-Taking leverage simply multiplies the funding rate. Sudden liquidations are still avoided.

Just remember that high leverage will eat through your collateral quickly so be sure to re-collateralize or close your position quickly when using high leverage. If you want a longer term position, low leverage greatly extends the collateral runway.

Comparison to Options

An option gives you leveraged exposure to the upside of an asset, with capped downsides. You pay an upfront premium which is a combination of how "In-The-Money" the option is and how much "Time-Value" it has, in other words how far away the expiry is.

Bullish Vol-Taking vs a Traditional Call Option

Vol-Taking has a similar payoff profile, but instead of paying the cost upfront, the cost is paid over time as long as the position is open. This allows users to only pay for the time they need as opposed to the rigid cost of options. For example, if you buy an option with an expiry a month from now, but exercise in one day, you've burned nearly a month's worth of time value. That doesn't happen with Vol-Taking.