# Case Studies

### Study the 3 Scenarios Below

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{% tab title="Scenario 1 - You go short" %}

## 117x Leverage

**You add a short position of $500 worth of Dec 23 Ethereum Futures.** 

The 2-year historical correlation for this market is 83%. 

* Assume that the margin calculation for Ethereum is $50. 
* The collateral requirement is reduced by the correlated position. 
* Margin requirement is $8.50.

**Effective leverage for this simple portfolio is 117X**
{% endtab %}

{% tab title="Scenario 2 - You go long" %}

## 291x Leverage

**You go long $500 worth of Dec 23 Bitcoin Futures.**

You buy a Put Ladder of options to capture downside value, each for $1000 notional. 

* Puts 25,000; 23,000; 20,000; respectively. 
* Total Notional position, $3500.

The margin on a CEX or DEX with no portfolio risk is circa $350.

* Put option margin requirement produces a delta offset against the future of 76%. 
* The margin requirement is reduced to $12.

**Effective leverage for this simple portfolio is 
291X and 30 times better than a typical CEX.**
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{% tab title="Scenario 3 - Options Portfolio" %}
1155x Leverage

Complex market maker portfolio with nearly perfect delta hedging

<table><thead><tr><th width="124">Long/Short</th><th width="110">Instrument</th><th>Expiry</th><th width="72">C/P</th><th>Strike</th><th>Amount</th><th>Δ</th><th>θ</th><th>Mark</th></tr></thead><tbody><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>C</td><td>24 000</td><td>$2 000</td><td>0.91</td><td>-20.46↓</td><td>1650.36↑</td></tr><tr><td>Short</td><td>Bitcoin</td><td>Aug 23</td><td>C</td><td>25 500</td><td>$7 000</td><td>-0.86</td><td>-83.68↓</td><td>232.40↑</td></tr><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>C</td><td>26 250</td><td>$4 000</td><td>0.26</td><td>-35.48↓</td><td>28.47↑</td></tr><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>C</td><td>28 000</td><td>$2 000</td><td>0.01</td><td>-1.46↓</td><td>7.73</td></tr><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>P</td><td>23 000</td><td>$3 000</td><td>0.00</td><td>-0.22</td><td>10.30</td></tr><tr><td>Short</td><td>Bitcoin</td><td>Aug 23</td><td>P</td><td>25 000</td><td>$4 000</td><td>0.05</td><td>-32.38↓</td><td>43.22↑</td></tr><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>P</td><td>27 000</td><td>$1 000</td><td>-0.96</td><td>-22.59↓</td><td>1121.38↑</td></tr><tr><td>Long</td><td>Bitcoin</td><td>Aug 23</td><td>P</td><td>27 500</td><td>$5 000</td><td>-0.96</td><td>-22.59↓</td><td>1121.38↑</td></tr></tbody></table>

**A typical liquidity provider on options**

Provides prices across the entire market, and generates a series of options trades as users trade. These result in a portfolio of trades. Let’s envisage a typical 1-month market maker portfolio

**Against this 1 month of options portfolio**

The market maker holds a Long $8800 Aug 23 Bitcoin Futures position.

* The portfolio is delta-hedged, the future offsets the margin.&#x20;
* The VaR calculator will produce a small collateral requirement from the theta decay on premiums.&#x20;
* Here with these short dates net theta is low, a total $16.6 for 2 days.

Gamma, the sensitivity of delta to price changes is also low at 0.14, making only a minor contribution to the margin. Therefore $16 of margin is used for $19,200 of notional value.

**Leverage 1155x, it is only with this approach that market-making options on-chain become cost-effective.**
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<img src="https://3671841282-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2Ff8mMbaKaPMO74PEW7suu%2Fuploads%2FwzYaGPwxMbRv1qlDX15H%2Ffile.excalidraw.svg?alt=media&#x26;token=f1bb5d12-ef69-4ed0-8b5a-5e42d433a0b2" alt="Leverage Comparison Across Scenarios" class="gitbook-drawing">

### Why different Leverage Values?

* Options Portfolio (1155x): Achieves the highest leverage through perfect delta hedging and comprehensive risk management across multiple positions.
* BTC Long + Put Ladder (291x): Leverages Bitcoin's low-risk parameters and uses options to create a 76% delta offset.
* ETH Short (117x): Uses market correlation (83%) to reduce margin requirements, but achieves lower leverage due to Ethereum's higher risk parameters.

#### The key factors enabling higher leverage are:

1. Complete portfolio risk offsetting (delta hedging)
2. Asset's risk parameters (BTC has lower alpha, beta and gamma than ETH)
3. Correlated positions reducing overall portfolio risk
4. Complex position structures vs. simple directional trades