I live in a village name Chowdala.I am village doctor.I always try to help the poor people as I can.If Allah help me with a large asset I will also help th.
There's a simple strategy you can take to avoid impermanent loss from price increases / decreases within your CLMM position.
Yesterday I discussed about impermanent loss and how you can experience it as the price deviates either upward or downward from the price at position creation. However, this is actually only the case when the price was within the set position price range (in the money).
You can save your position from IL in either direction if you set the position outside the price range (out of the money), or more specifically when you set either the lower price or upper price of the position exactly at the initial price.
The chart below (Heimbach et al.) shows the relationship between the impermanent loss of a position, and the relative price change in the position assets for the cases where: 1) you set the lower price exactly at the initial price (purple), and 2) you set the upper price at the initial price (green).
As you can see, the first case allows you to avoid IL from downward price movements, while the latter allows you to avoid IL from upward price movements.
Is there any catch? Yes. When saving yourself from IL in either case, you are no longer earning fees from your position while the price is out of the money.
So the cost of foregoing IL is the swap fees that you could have earned. There is no free lunch!
However, this is still a great way to set a position in the case that you want downside / upside IL protection while maintaining the opportunity to earn fees in the other direction.
In a later discussion, I'll also explain how this can be done opportunistically as a directional trade while earning fees.
Till next time!
Reference: (Heimbach et al.) https://t.co/4RwdT3Pd4l
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