How To Adjust Covered Call Options on Crypto

Adjusting a covered call on crypto is similar to adjusting a covered call on any other asset. A covered call is a popular options trading strategy where an investor holds a long position in an asset and sells a call option on that same asset to generate income. If the underlying asset is a cryptocurrency, the same principles apply, but there are a few additional factors to consider.

On March 10, 2023, I established a covered call position with Ethereum on the Deribit trading platform, I decided to go with a weekly call option and the strike price of $1,450, at that moment Ethereum was trading a little bit under $1,400, but soon I was troubled as Ethereum price increased, I started rolling up and forward this position for a credit. 

Ethereum price March 14, 2023

At the start, I rolled up from $1,450 to $1,500, and the expiry at on March 31, 2023, but once again ETH crossed $1,500 I rolled one more time up and forward, this time to April 28, and the strike price $1,600.

Once I was finished with this roll forward ETH run again past $1,600 and I started to think I have a few options to do next, for example, I could do nothing, wait for the expiry, and let it expire in the money (I still will realize profit), I could roll up and away again, but that would come with a sacrifice with rolling it away too far. 

And then I decided to simply hedge this position by selling additional put option under my current strike price, instead of choosing the same expiry, I decided to spice it up a little bit and went for weekly put option selling. I'm selling put options on ETH with strike prices under $1,600, thus making sure that I gain from the put side as long as suffer on the call side. These little adjustments add up and can help to squize some extra jucie from existing trade.

At the moment there are some 6 weeks left until the call option expiry, in the case ETH price will stay above $1,600 I will keep selling put options, the closer the expiry will come I will start to look for ways how to roll up the call side also.

Here are some other ideas to consider when adjusting a covered call on crypto:

  1. Determine your break-even price: The break-even price is the price at which you will neither make a profit nor a loss. You can calculate your break-even price by subtracting the premium you received from selling the call option from the current price of the underlying asset. This will give you the price at which you would need to sell the asset to break even.

  2. Evaluate market conditions: Keep an eye on market conditions, news events, and other factors that could impact the price of the cryptocurrency. If the price of the cryptocurrency is trending higher, you may want to adjust your covered call to prevent your asset from being called away at a lower price. If the price is trending lower, you may want to consider rolling your call option to a later expiration date or a lower strike price.

  3. Consider rolling your call option: If the price of the cryptocurrency has increased significantly and is approaching or exceeding the strike price of your call option, you may want to consider rolling your call option to a later expiration date or a higher strike price. Rolling your call option involves buying back your existing call option and selling a new call option at a later expiration date or a higher strike price. This allows you to generate more income while maintaining your long position in the asset.

  4. Monitor your position: As with any trading strategy, it's important to monitor your position regularly and adjust your covered call as needed. If the price of the cryptocurrency continues to increase, you may want to roll your call option again or consider selling your asset to lock in your profits. If the price of the cryptocurrency declines, you may want to consider buying back your call option or rolling it to a lower strike price.

Overall, adjusting a covered call on crypto requires careful monitoring of market conditions and a thorough understanding of options trading strategies.

By keeping a close eye on market trends and using the right tools, you can maximize your profits while minimizing your risk.