LP Ladder and Options Hedge
SOL falls from $85 to $70 and Julia's put spread pays out $2,000, but after the collateral loss and the premium, the net is $0. A three-bucket LP ladder, a put spread as travel insurance, and why LP and options cover each other's weaknesses.
LP Ladder — 3-Tier Structure
Instead of one large LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → — three narrow $5 tiers:
| Tier | Range | Capital | State at $85 |
|---|---|---|---|
| Lower | $75–$80 | ~$867 | 100% USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → (waiting to buy SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →) |
| Active | $80–$85 | ~$867 | Mix SOL/USDC — earning fees |
| Upper | $85–$90 | ~$867 | 100% SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → (waiting to sell) |
How it works: as the price swings between $80–$85, the active tier keeps converting SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → ↔ USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →, earning fees (~0.05–0.30%) on every swap.
You can concentrate capital into the active tier:
- Lower: $650
- Active: $1,300 (2x capital → 2x fees in the active range)
- Upper: $650
The side tiers act like thinner “limit order” layers — ready for rotation but generating fewer fees.
Which Platform? SOL
The choice comes down to chain, not fees: EthereumEthereumA blockchain with smart contracts. We use Aave (lending) and Uniswap (LP) on it.Read the lesson → gas is cheap today (a swap costs ~$0.03; it moves with network load and can spike several times higher during peaks — worth checking etherscan.io/gastracker before a larger operation). UniswapUniswapAn Ethereum concentrated-liquidity protocol (V3/V4). Its Solana counterpart is Orca.Read the lesson → V3 doesn't fit here simply because the strategy's assets — the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral on KaminoKaminoSolana lending protocol. In our strategy: SOL collateral to a USDC loan.Read the lesson → and the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →/USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → pair — live in the SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson → ecosystem.
Options PUT Spread
With 80 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → of collateral + LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → delta ≈ 93 SOL effective long position. This position needs protection against a crash.
Structure on Deribit:
- Long 10 contracts $90 PUT (main protection)
- Short 10 contracts $70 PUT (lowers the cost, caps protection at $70)
- 120 days to expiry
- 1 contract = 10 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → → 100 SOL of protection
Numbers:
- Max payout: 100 × ($90-$70) = $2,000 at SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $70
- Net debit: ~$800 (depends on IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →)
Hedge Ratio Validation
If SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → drops to $70:
| What happens | Value change |
|---|---|
| 80 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → collateral loss | -$1,200 |
| LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → converted to 100% SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → | additional downside exposure |
| PUT spread payout | +$2,000 |
| PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → paid (net debit) | −$800 |
| Net | $0 (gross +$800, minus the premium — zero) |
The protection covers the collateral loss, but after the premium nothing is left over for LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → IL — and the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → genuinely does carry IL at that point. If you want a buffer for IL too, you need a wider spread (a lower short strike or a higher long strike) or a lower LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 83%+ triggers liquidation.Read the lesson →, so the collateral loss itself is smaller.
When to Buy Options? (DTE Strategy)
Buying window: 120–90 DTE
- ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson → decay (the option's daily value erosion) is flat (only 0.3–0.5%/day)
- VegaVegaAn option's sensitivity to volatility (IV). High vega means the option price depends heavily on IV.Read the lesson → (sensitivity to volatility) is high — if IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → (implied volatility) spikes, options get more expensive
- DeltaDeltaAn option's price sensitivity to the underlying price. Delta 0.50 means: if the underlying rises $1, the option price rises about $0.50.Read the lesson → (price sensitivity) ~35–40 (not 50 like near expiry)
Mandatory roll: 30 DTE
- ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson → accelerates to 1–2%/day
- GammaGammaThe rate of change of delta. High gamma means delta shifts quickly as the price moves.Read the lesson → risk (accelerating delta change) rises
- RollRollRolling an option — closing the old one and opening a new one with a later expiry.Read the lesson → → new 120 DTEDTEDays To Expiry — the number of days left until an option expires.Read the lesson → spread
Up Rotation — Strike Adjustment
When the price rises $5 ($85 → $90):
- Long leg: $90 → $95 (you roll it up)
- Short leg: $70 (leave it — the premium is too small to bother rolling)
Result: the spread widens $20 → $25, max payout $2,000 → $2,500.
Every up rotation increases protection as the price rises — this is asymmetric hedge growth.
Roll Mechanics at 30 DTE
- Close the old spread (close long + buy-to-close short)
- Check the current SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price
- New long leg = ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson → (at-the-money — at the current price) or +$5 OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson → (out-of-the-money — slightly above the market) if in an uptrend
- New short leg = $20–$25 OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →
- Open a new 120 DTEDTEDays To Expiry — the number of days left until an option expires.Read the lesson → spread
Roll cost: ~2–4% of premium (bid/ask spread).
If the long leg is deep ITMITMIn The Money — an option that has intrinsic value.Read the lesson → (in-the-money — the strike price is far above the market, meaning the option's value is large) after a SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → crash to ~$75–80 within 30 DTEDTEDays To Expiry — the number of days left until an option expires.Read the lesson → — don't roll right away. Keep the protection in place until expiry or until the price recovers. RollingRollRolling an option — closing the old one and opening a new one with a later expiry.Read the lesson → a deep-ITMITMIn The Money — an option that has intrinsic value.Read the lesson → position would lock in the accumulated protection value as a loss — so you'll recognize this moment yourself and let the protection keep working to the end.
The Bottom Line
LP and options = complementary:
- LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → earns in calm markets (fees from oscillation)
- OptionsOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → protect in crashes (intrinsic value + IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → pop)
- LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → fees → cover the options' theta
- OptionsOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → → let LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → run leveraged without catastrophic risk
One without the other: either high return with large downside (LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → alone), or expensive insurance with no carry to offset it (options alone). The combination = risk-adjusted return that neither component reaches on its own.
Once you grasp this interaction, you become able to tell at a glance which component is currently earning and which is standing guard — and to manage the whole position as one system, not a pile of separate trades.
Before putting real capital to work — a paper plan. You'll pick your own ranges and protection levels based on the current SOL price. ~20 minutes, no trades.
This is a paper plan only — don't open real LP or options positions. Deribit options and concentrated LP can lose a significant share of capital.
This is learning, not investing — use only small amounts you treat as tuition.
You just designed an LP ladder and validated the hedge ratio on paper with your own numbers — for most people, options and LP stay two disconnected worlds all the way through.