Short or Delta Neutral, that is the question

Crypto Cutie
7 min readMar 30, 2022

Unfortunately, we are in a world with extreme uncertainty. The war, sanctions, hyperinflation, never-ending pandemic…In this brutal reality, eating less meat and piling up daily life necessities can be considered “financial advice”. I don’t know if we are or will be in a bear market, but I know that our lives are thrown off balance, and many sectors are impacted in the long term by our weakened purchasing power and these extreme global events. It might be a good time to talk about a trading strategy Short, the expectation that an asset’s price will go down and make profits out of it.

Poster from The Big Short

Short in trading means selling the asset now and repurchasing it (at a lower price) in the future. You earn profit by the depreciation of the asset’s price. Mirror Protocol, a defi project that allows people to long and short synthetic assets, in their terms, Mirrored Assets (mAssets). mAssets mimic the price behaviour of real-world assets like stocks or commodities. There are more than 30 types of mAsset, such as trending stocks such as Tesla, Amazon and commodity-related indexes like gold and silver. You can get exposed to their price movements on the blockchain without opening an actual stock or commodity trading account. Mirror allows you to long and short the mAssets. It works like this.

Short 100 shares of mAsset means:

1- borrow 100 shares from Mirror. There is liquidation risk if the collateral falls below the minimum ratio.

2- sell the borrowed 100 shares immediately and get (after two weeks) the equivalent UST (stablecoin) from selling them

3- repay the 100 shares.You pay 1.5% on the repaid shares as a protocol fee when you close a Short position. The collateral you withdraw is after deducting the protocol fee.

Long 100 shares of mAsset means on Mirror means:

1- buy 100 shares from Terraswap

2- Put 100 shares of mAsset and the same value of UST into the liquidity pool mAsset-UST

Going Long or Short has the risk of taking a loss when the price moves in the wrong direction, i.e. long when the price goes down and short when the price goes up. To avoid the risk of price movements, you can apply a delta neutral strategy. By definition, delta neutral is a…