Another look on Covered Call selling with Bitcoin / Ethereum on Deribit

Updated: 8 April, 2022 seen 122

A time ago I did a lot of crypto options trading, I have made several articles and a few YouTube videos on this topic already, in general, from my own experience I'm quite negative about crypto options as long as they are settled in crypto itself.

Time after time re-evaluate my previous findings, so did happen today - I decided to test one more time idea with covered calls on Deribit.

(spoiler, the findings still are not satisfactory) 

Quick research, with ETH trading at $3,280 on April 8, 2022

We could sell April 15, 2022 expiry call option with a strike price of $3,300 and get 0.0275ETH or with a strike price of $3,400 and get 0.0155 ETH

Trading Ethereum Crypto options on Deribit platform
Trading Ethereum Crypto options on Deribit platform

For the simplicity of this article, I will stick with the more aggressive strike price of $3,300

To sell one call options with ETH on Derbit platform we are obligated to provide a margin of more than 0.1 ETH.

The minimum we are required to trade this option is 0.1446 ETH

Say we buy 0.1446 ETH at $3,280 and sell a call option with a strike price of $3,300. Our total investment - $474.28

what happens next?

If on the expiry date (April 15th, 2021) ETH trades under $3,300 - very well we keep the premium and start over. This is our ideal scenario.

But now let us look at what happens if ETH reaches and breaks our strike price, say ETH trades at $3,400, we are obligated to pay the difference in crypto, I know this sounds a bit complicated, and trust me, it is…

Anyhow, with $3,400 it means we need to deliver the difference, which is $3,400-$3,280, and convert it to crypto…

120/3400= 0.035 ETH, we are obligated to pay 0.035ETH

OK, but as the price rise, our original investment of $474.28 has a worth of $491.64 we gain back something on the price difference, the final math should look like this

0.1446 + 0.0275-0.035 = 0.1371 ETH

If we convert it back to the USD value = $466.14, we have just lost about -$8.14

Doesnt look like an option to me, with Ethreum price rising just by $120 in a week, we would loose already. Such movements are quite possible That is just a 3.6% upward. 

Another way, we could do, is to buy protective call, like a spread. But that already is not a topic for a covered call selling.

Again, I will skip selling crypto settled options for now.