LP Short

If you read LP Long - a creative way to establish a long position using LP with a built-in take-profit mechanism, this explores the method of using LP to go short on any ticker.

There are two types of positions a trader can take in a market: long and short - either buy an asset (going long) or sell it (going short). Rethinking impermanent loss exposure in a single sided LP position allows one to take such a position (long or short).

A short position is the exact opposite of a long position. The trader hopes for, and benefits from, a drop in the price. Executing or entering a short position is a bit more complicated than simply purchasing the token.

Example:

If I am short ETH, and ETH is $1.9k, then you would create a single side position, out of range, BELOW the current tick (price) and supply it to the range I believe ETH price will go down to. When creating the position, the ratios would be:

0% ETH, 100% USDC

Once the position is in range it will start earning fees (a feat novel to using LP to go short). As traders swap taking the price downward, they are providing ETH and the position is giving them USDC allowing the position to fundamentally buy the short price. This is also DCA like.

In the volatility of the market, while the position is still in range, the buys of ETH, returns the USDC to your position giving you USDC in return.

If your exit target is reached, your LP position will be 0% USDC and 100% ETH, effectively out of range - allowing you to get the discounted ETH to strategically re-enter the market with.

If you go short via LP, you should consider what your next move is when coming out of the trade to turn a profit with your discount purchased tokens.

Getting creative, you could estimate the moving average APY on swap fees and borrow additional ETH for a net arb making it a levered LP perp.