We’re incredibly pleased to announce that Socean has partnered with our insanely talented friends at Friktion to integrate a scnSOL Covered Call Vault!
Our partners at Friktion has a fantastic article on this topic: https://friktionlabs.medium.com/how-do-covered-calls-work-bf94fe080922
A call option is a contract between a buyer and a seller that gives the buyer the right to purchase a certain underlying asset (e.g. scnSOL) at an agreed price (a.k.a strike price) up until a defined date (a.k.a expiration date).
The buyer of a call option has the right, not the obligation, to exercise the call and purchase the underlying asset at the strike price. On the other hand, the seller of a call option has the obligation, not the right, to deliver the underlying asset if and when the buyer exercises the option.
A covered call strategy involves generating passive yield from selling (writing) call options on an asset that you own.
In exchange for earning the premium from the option buyer, the seller gives away the right to purchase the asset at the agreed upon strike price. It’s important to remember that this strategy doesn’t utilize any leverage or token emissions, since all the options are fully collateralized by the sellers holdings!
In our case of using the scnSOL Volt in Friktion, you are the seller of the scnSOL covered call option, looking to sell the call to a potential buyer.
Say scnSOL is currently $200 and you deposited 1 scnSOL into Volt #01’s covered strategy, which is writing a call option at a strike price of $220 expiring in 1 week, collecting a $10 (0.05 scnSOL or 5%) premium.
In other words:
Before proceeding, it is important to understand that a buyer of a call option will exercise the option (i.e. the right to buy the underlying asset) if and only if the price of the underlying asset is greater than or equals to the strike price plus the option premium because only then is this exercise profitable.
Note: Friktion v1 is built with physically settled options meaning you receive yields in scnSOL, not USDC.
Learn more through this great video from Genesis Volatility: https://www.youtube.com/watch?v=ZndBj8EQ6wg
The first batch of Friktion Volts (Volt #01) focuses on income generation strategies, running automated covered call selling and cash secured put programs.
Once deposited, funds are deployed into the current epoch and the Volt becomes your active portfolio manager.
Your deposits are auto-compounded weekly. Option strikes and expiries are algorithmically determined to maximize your returns and minimize the chance of an option being called or underlying asset assigned. Withdraws can be pre-set and claimed once the withdrawal window opens.
Pretty easy — head to https://app.friktion.fi/income and deposit your scnSOL into the Covered Call Vault. There’s a cap of 5500 scnSOL at the moment and it’s filling up pretty fast, so hurry up if you want to get some nice 45.8% APY on your scnSOL!
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