Expanding the Endowment Mandate: Onchain Options
Summary
This post follows the June 2026 Investment Policy Update, which made no significant expansion of available strategies. This post is deliberately separate: it proposes amending the IPS itself.
Delegates have raised a number of questions about the Endowment’s mandate. One was whether it should write options against assets it already holds. KPK recommends the DAO amend the IPS to permit covered options writing: covered calls and cash-secured puts against existing holdings. This post makes the case and includes a proposed first trade, a cash-secured put, analysed quantitatively against the current IPS. The amendment authorises the strategy; it does not commit the DAO to any single trade.
The Endowment is conservative by design: ETH, staked ETH, and a few major stablecoins, deployed only via over-collateralised lending, liquidity provision, staking, and cash-and-carry on Ethereum mainnet, with no protocol above 30%, a three-year stablecoin runway floor, a strict 60/40 ETH-to-stable split, and no speculative trading. Any expansion has to be measured against that baseline.
Background: What Options Are
Options are derivatives giving the holder the right, not the obligation, to buy or sell an asset at a set price by a set date. Calls are the right to buy; puts are the right to sell. Every contract has a strike price, an expiration date, and a premium paid upfront to the seller.
Moneyness describes the strike relative to spot: ITM (in the money, has intrinsic value), ATM (at the money, strike = spot), OTM (out of the money, no intrinsic value).
For a treasury, selling options rather than buying is the relevant move: it generates upfront premium income and lets the Endowment take a position at price levels it already finds acceptable, without transacting the underlying outright.
The Two Strategies
Covered Calls
Written against an asset already held. Hold the asset, sell a call above spot, collect the premium. If price stays below strike, keep the asset and the premium. If price rises through strike, the asset sells at strike, premium still kept.
Example: 100 ETH at $3,000; sell a 30-day $3,300 call for $200/ETH ($20,000 total). Below $3,300, keep ETH plus $20,000. Above $3,300, sell at $3,300, still keep $20,000.
- Upside: income on inventory already earmarked for sale.
- Downside: capped upside on a hard rally, and an obligation to deliver if exercised.
Cash-Secured Puts
Funded from the stablecoin side. Hold stablecoin collateral, sell a put below spot, collect the premium. If price stays above strike, keep the stables and the premium. If price falls below strike, buy the asset at strike using the collateral, premium still kept.
Example: $500K in stablecoins; sell a 30-day put at a strike 10% below spot, collect a $13,700 premium. Above strike, keep the $500K plus premium. Below strike, buy at the strike using the collateral, premium still kept.
- Upside: yield on otherwise-idle stablecoins, plus accumulation at a pre-approved discount.
- Downside: collateral is locked until expiry, and an obligation to buy if ETH falls through the strike.
(The two examples above use round numbers to illustrate the mechanics. The proposed first trade further down uses live ETH pricing near $1,600.)
Why Start With Puts
ETH trades near $1,600, well off its 2025 high above $4,900, after a sustained drawdown. Realised volatility sits around 55% annualised, elevated but short of crisis levels. That keeps put premiums meaningful, while a deep, out-of-the-money strike keeps assignment risk low even in a falling market. The only adverse outcome, assignment, is buying ETH at a price the DAO already wanted. Puts also sit on the stablecoin side, so they don’t compete with the Endowment’s existing ETH yield and rebalancing flows. Calls only earn their place later, against a narrow sleeve of ETH already scheduled for sale.
The volatility backdrop matters because premium scales with it. Over the trailing year, ETH’s annualised realised volatility ranged from roughly 35% in the calmest month (May 2026) to 79% in the most turbulent (February 2026, the year’s sharpest drawdown). The full monthly breakdown, and the methodology behind it, is in the quantitative analysis below.
For a put seller, this is the right regime: volatility high enough that premiums are worth collecting, without the panic conditions that would make even a deep strike likely to be assigned. It is also why the recommended trade sits far out of the money, capturing premium while keeping the buy level well below current spot.
Quantitative analysis that led to this decision
Asset: ETH
Notional: $1,000,000 (622 ETH)
Expiry: 30D
Decision: Sell 1150 Put
1. Methodology: why Garman-Klass
We estimated ETH volatility using the Garman-Klass estimator, which incorporates the full daily high/low range and open/close move rather than relying on close-to-close returns alone. This is roughly more efficient than a simple close-to-close calculation, which matters especially for monthly estimates where the sample size is small (20–31 trading days).
gk_i = 0.5 · (ln H/L)² − (2·ln2 − 1) · (ln C/O)²
Where, for each day i:
H = highest price of the day
L = lowest price of the day
C = close price of the day
O = open price of the day
ln = natural logarithm
(2·ln2 − 1) ≈ 0.3863, a constant that corrects for the drift/directional component, so the estimator stays unbiased
gk_i = the Garman-Klass variance estimate for day i (the first term captures intraday range, the second corrects for the open-to-close move)
2. ETH Price Context
Raw ETH price over the period, used as a reference for the vol charts below, sharp moves or choppy ranges here should line up with vol spikes. Calm trending periods (e.g. the Sep 2025 plateau) produced low vol; sharp reversals (e.g. the Feb 2026 drawdown) produced high vol.
3. Daily Rolling Volatility
Daily rolling vol (30-day window) currently sits at ~0.0356, right around the 12-month mean of 0.0355, but importantly, it’s trending upward off a May 2026 low rather than sitting in a calm, complacent regime.
Each point is GK vol computed over the trailing 30 days, smoothing single-day noise while staying responsive to regime shifts. The dashed line marks the period mean. Rising line = market becoming more volatile; falling line = market calming down. We’re currently on the rising side of a recent trough, which argues for caution rather than reaching for yield.
4. Monthly volatility
Monthly GK vol has ranged from 0.0219 (May 2026, calmest) to 0.0499 (Feb 2026, most volatile) over the trailing 12 months, with the largest spikes clustering around sharp down-months (Oct–Nov 2025, Feb–Mar 2026).
One vol number per calendar month. Dark bars = negative-return months, light bars = positive-return months. High + dark = volatile down move (e.g. Feb 2026’s crash). Low bars = tight, rangebound months (e.g. May 2026). This confirms the pattern seen in the rolling chart: volatility spikes have historically coincided with drawdowns, not rallies.
5. From vol to strike selection
Scaling current daily vol to the option’s 30-day horizon gives an expected move of roughly ±19.5%, which we used to estimate each strike’s probability of finishing in-the-money.
These are rough estimates from a normal-distribution model; real assignment odds on downside strikes run somewhat higher because options price in a volatility skew.
| Strike | Strike/Spot | Premium (APR) | Est. Assignment Probability |
|---|---|---|---|
| 1550 | 96.4% | 55.4% | ~42% |
| 1450 | 90.2% | 32.3% | ~30% |
| 1300 | 80.8% | 14.8% | ~14% |
| 1150 | 71.5% | 7% | ~4% |
The 1550 and 1450 strikes carry near-coinflip-to-1-in-3 assignment odds, the premium there compensates for real, live risk, not “safe” yield. 1300 and 1150 meaningfully reduce that exposure.
6. Decision
Given the goal of preserving capital, and with realised vol trending upward rather than calm, we selected the 1150 strike: the best match between our volatility data and an acceptable risk threshold, while still locking in a ~7% APR.
Execution Venue
Both strategies can execute on-chain with custom strikes and expiries, keeping settlement transparent.
- MYSO Finance settles on Ethereum mainnet, built for treasuries, bespoke P2P quotes against institutional trading firms, ~$100k minimum notional, custom strike/tenor.
- Rysk Finance offers the same primitive via vault plus RFQ auction, over $1B notional volume since launch. Currently runs on Hyperliquid’s HyperEVM, with mainnet roll-out impending, and has no top-tier audit as of mid-2026.
Either is a viable venue for the trade below, especially consdering the Rysks mainnet roll-out. Headline premium and APY figures at both are point-in-time, not durable yields.
Sizing and strike selection matter more than any quoted number.
Proposed First Trade: Cash-Secured Put
When the Endowment sells a put, it selects a strike: a price below the current ETH price at which it is prepared to buy. The lower the strike relative to spot, the lower the probability of assignment, and the lower the premium. The table below maps that trade-off across four strikes at recent (July 1st 2026) pricing, ETH near $1,600, on a $1M (~622 ETH) notional at one-month tenor:
| Strike (vs. spot) | Premium (1M) | Annualised* | Assignment risk | Interpretation |
|---|---|---|---|---|
| ~3–4% below | ~4.5% | ~55% | High | Maximum premium, but assignment is near-certain. Economically close to buying ETH outright today. |
| ~10% below | ~2.65% | ~32% | Moderate | Meaningful premium against a modest chance of acquiring ETH at a 10% discount. |
| ~20% below | ~1.2% | ~15% | Low | Reduced premium; assignment only on a sharp drawdown. |
| ~30% below | ~0.57% | ~7% | Minimal | Modest, dependable premium with assignment only on a severe drawdown. The conservative choice, and the recommended trade. |
*Annualised figures compound a single month’s premium across twelve months and assume premiums hold at current levels. They will not; premiums move with volatility. The figures are illustrative, not a forward yield.
Recommended trade: the ~30%-below strike. This sits deliberately at the conservative end of the curve: a low, dependable premium in exchange for minimal assignment risk, with ETH acquired only if the market falls sharply.
Concrete terms at an ETH spot near $1,608:
| Parameter | Term |
|---|---|
| Instrument | ETH cash-secured put, Endowment as seller |
| Spot at quote | ~$1,608 |
| Strike | ~$1,150 (~71% of spot) |
| Tenor | ~30 days |
| Notional | $1,000,000 (~622 ETH) |
| Premium | ~0.57%, ~$5,700 collected upfront |
| Annualised | ~7% |
| Collateral | ~$715,000 stablecoins, locked to expiry |
| Outcome if ETH ≥ $1,150 | Retain collateral and premium; position expires |
| Outcome if ETH < $1,150 | Acquire ETH at $1,150 (~30% discount), retain premium |
The decision is where to set the acquisition price, and the Endowment sets it 30% below spot. It earns a steady ~7% annualised premium, and assignment happens only on a severe drawdown, precisely the level at which the Endowment wants to be buying ETH.
The IPS Tension
Options aren’t in the IPS’s allowed-strategies list, and a strict reading of the speculative-trading prohibition would exclude them.
The counterargument: a fully covered position is an overlay on existing inventory, not a directional bet, backed by stablecoins set aside for the purpose, with a strike reflecting a pre-approved transaction price rather than a reach for premium.
The DAO would need to draw that line explicitly: permit covered writing against existing inventory, cap the committed share, keep the speculative-trading prohibition intact for everything else.
Recommendation
KPK recommends the DAO amend the IPS to permit covered options writing (covered calls and cash-secured puts) against assets the Endowment already holds, subject to explicit sizing caps and the constraint that every position be fully covered by inventory or set-aside collateral. These strategies can be codified to remain confined to a small percentage of the portfolio only. The speculative-trading prohibition would remain intact for everything else.
If delegates support this direction, KPK will bring formal amendment language, with the sizing caps and execution constraints, to a Snapshot vote.
The cash-secured put detailed above is the first trade KPK would execute under that mandate; it is shown here as a worked example of how the strategy would be applied, not as a separate item for approval.
We welcome feedback on the proposed direction, the sizing and risk constraints, and the analysis above.