Friktion Labs x Socean: scnSOL Covered Call Vaults

  • Socean and Friktion Labs announce an exciting partnership to integrate scnSOL Covered Call Vaults for our users!
  • Starting cap of 5500 scnSOL
  • 45.8% APY

We’re incredibly pleased to announce that Socean has partnered with our insanely talented friends at Friktion to integrate a scnSOL Covered Call Vault!

What on earth is a covered call?

Our partners at Friktion has a fantastic article on this topic: https://friktionlabs.medium.com/how-do-covered-calls-work-bf94fe080922

What is a covered call and what makes it a good income strategy?

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.

Let’s jump into an example:

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:

  • Price of call option (option premium): $10
  • Underlying asset: scnSOL, currently @ $200
  • Strike: $220
  • Expiry: 1 week from now

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.

Scenario 1: scnSOL price hasn’t changed by expiry, still at $200

  • Since $220 + $10 > $200, the buyer WILL NOT exercise.
  • The call option expires worthless and you collect 0.05 scnSOL from selling the option
  • Your PnL = $10 (the option premium)
  • Your PnL (in scnSOL) = $10/$200 = 0.05 scnSOL
  • You earned +5% (+0.05 scnSOL)

Scenario 2: scnSOL price falls to $150 at expiry

  • Since $220 + $10 > $150, the buyer WILL NOT exercise.
  • The call option expires worthless and you collect 0.05 scnSOL from selling the option
  • Your PnL = $10 (from the option premium)
  • You PnL (in scnSOL) = $10/$150 = 0.0667 scnSOL
  • You earned +6.67% (+0.0667 scnSOL)!

Scenario 3: SOL price at expiry is above the strike + option premium, say $240

  • Since $220 + $10 < $240, the buyer WILL exercise.
  • You deliver 1 scnSOL for $220 (strike price), now equivalent to $220/$240 = 0.9167 scnSOL
  • Collect 0.05 scnSOL from selling the option
  • Your PnL = $10 (from the option premium) + ($220 — $240) = -$10
  • You PnL (in scnSOL) = -$5/$240 = -0.0208 scnSOL
  • You lost -2.08% (-0.0208 scnSOL) but the value of your scnSOL went up $240/$200 = +20.00%!

Learn more through this great video from Genesis Volatility: https://www.youtube.com/watch?v=ZndBj8EQ6wg

Why use Friktion’s covered call strategy to generate income?

  1. Enhance income with volatility: As volatility rises, so does the premiums and yields which can be generated on call overwriting strategies.
  2. Active management: Friktion’s customized solution offers automated strike and expiry selection, position sizing, and target risk-rewards so you are able to set-and-forget across Epochs
  3. Earn yields that aren’t reliant on token emission programs or vary based on borrowing demand and liquidation management
  4. Efficient execution through on-chain orderbooks and competitive market maker auctions.

What do Friktion Volts do?

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.

How to deposit into the scnSOL Covered Call Vault

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!

Contact Us

🌊 | Visit us at socean.fi

💬 | Join our Discord community discord.gg/socean

🐦 | Follow us on Twitter @twitter.com/soceanfinance

📢 | Follow our Telegram Announcements Channel: https://t.me/soceanfi

✍️ | Our Medium: https://soceanfinance.medium.com/

🤝 | Help us build a better future: https://forms.gle/Td82dkBXD8UF1tyW9

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Building decentralised, positive-sum financial products

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