🧵 Selling Volatility in DeFi: Straddle vs Strangle — Who Wins?
We ran a full-year backtest on Panoptic’s perpetual $ETH options.
​
3 roll frequencies:
→ Daily
→ Weekly
→ Monthly
​
Here’s what actually works 🧨👇
​
First things first, some explanation of these strategies:
​
Short Straddle
• Structure: Sells an at-the-money (ATM) call and put.
• Payoff: Max profit when price hovers near the strike → both legs stream fees.
• Risk: Sharp move in either direction = one leg goes deeply in-the-money, causing losses.
• Ideal: Low volatility, mean-reverting markets.
​
Short Strangle
• Structure: Sells out-of-the-money (OTM) call and put.
• Payoff: Profits from wider price range staying between strikes = longer fee streaming.
• Risk: Breakouts beyond either leg trigger losses that scale fast.
• Ideal: Sideways, range-bound markets with no major breakouts.

1. Daily Rolling
🔄 Constant re-centering = smoother returns
🤏 Straddles outperformed: tighter fee zones = more yield
📉 Drawdowns stayed shallow, even in volatile weeks
​
2. Weekly Rolling
⚖️ Best balance of stability and capital efficiency
💸 Straddles again won: more consistent premia than strangles
📉 Max drawdowns ≈ -6%, quick recovery after market moves
​
3. Monthly Rolling

🎢 Much more volatile — longer exposure to directional trends
🥵 Strangles got hit hard: up to -14% drawdowns
💰 Calm months were profitable, but rare
​
💡 Conclusion

Straddles win — especially with tighter roll schedules.
Why?
→ Closer to the action = more fees
→ Require more active management
​
Well-managed short vol strategies can generate consistent yield — but only if you're disciplined and ready to adapt.
​
#DeFi #Options #Volatility #$ETH