Since we believe it’s important to set the right expectations and strive to overdeliver rather than overpromise, we want to point out that the TMC seems to have mistaken the expected yield on our ARB strategy: nowhere have we said to expect +30% yield on the ARB strategy, as cited in the TMC’s original post which @lobbyfi once again refers back to in the post above. While a covered call strategy certainly has the potential to achieve such yields and more, we cited 12% in the suggestion we gave above, while including even more conservative estimates in our proposal of 5-12% with minimal conversion probability. This doesn’t mean that we don’t think we can beat that or at least average close to the upper bound of that range.
We appreciate the TMC’s diligence in evaluating the proposals and raising concerns about the covered call strategy. However, we believe the comparison to Premia and Ribbon vaults is flawed for a number of reasons which raises the question of how relevant they are to our proposed strategy. We’d argue not very, because:
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The Premia vault’s lack of transparency on strikes and expiries makes it hard to tie back to our strategy and compare without knowing the specifics.
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The Ribbon vaults use different underlying assets (WBTC and ETH), making their performance less relevant to an ARB-focused strategy.
It’s like saying active portfolio management doesn’t make sense because you found one portfolio manager who’s underperforming. To disprove the validity of a strategy, the specific examples used should closely resemble the strategy in question.
In this case, the similarities are limited:
- Strike/Expiry: No alignment
- Underlying Asset: No alignment
- Covered Call Utilization: Yes, this is the primary similarity
Therefore, we believe these strategies aren’t as similar as they’re being framed. While caution is warranted, dismissing the covered call strategy based on these examples seems premature.
Ultimately, the decision lies with the community. However, we urge everyone to consider the nuances of this comparison and weigh the potential benefits of the proposed strategy alongside the risks, which have been addressed here, here and here.