3ļøāƒ£Delta-Zero

As per stated on The Straddle, we can obtain a delta-zero strategy over Uniswap's LPs using a long straddle option strategy. Assuming a bidirectional hedging, this strategy profits if the price of the underlying asset (in this case, the tokens in the Uniswap liquidity pool) moves significantly in either direction.

By holding both the underlying tokens and the call and put options, you can create a delta-neutral portfolio. This means that your portfolio's delta (i.e., sensitivity to changes in the price of the underlying tokens) is close to zero.

Mathematical Approach

Let's assume we want to create a delta-neutral portfolio using a Uniswap LP with two tokens, token XX and token YY.

Let's say we currently hold an amount of token XX in the liquidity pool, and we want to create a delta-neutral portfolio by buying options with token YY. To do this, we can borrow an equivalent amount of token YY from the Lendor Contract, using token XXas collateral.

Let's call the amount of token XXwe currently hold in the LP X0X_0. In that sense, we can borrow an equivalent amount of token YY, which we'll call Y0Y_0, from the Lendor Contract. This creates a new portfolio with X0X_0 amount of token XXin the liquidity pool, and Y0Y_0amount of token YY that we've borrowed from the lending protocol.

To create a delta-neutral position, let's assume User A has 10k USD of token xx. In order to provide liquidity using Artichoke, he has to deposit xx as collateral on the Lendor SC. After this, the smart contract will automatically borrow the user 10k USD of token yy, and will deposit both assets on the (x,y)LP(x,y)LP for a time tt.

After User A wants to get out the position, he must interact with the Lendor SC and close it. The smart contract will return Δx\Delta x assets to User A plus the fees accured during the time tt. On the other hand, Δy\Delta y tokens will be returned to the vault and compensate both (x,y)(x, y) for price movements.

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