How To Adjust Crypto Call Options on Deribit

| Trading | 14 seen

In this article, I will shed some light on how to adjust (roll up and roll forward) the covered call option on the Deribit trading platform.

Disclosure:  This article contains affiliate links to bitcoin options trading website, by clicking on links on this page and by investing with deribit, I will earn affiliate income at no cost to you. Also, I'm not a financial advisor and I don't give you any advice, I'm just sharing my own experience. Investments in stocks, funds, bonds or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.

On September 12, 2022, I bought 1 Solana coin paying $34.80, almost simultaneously I sold a call option with the strike price of $36 and expiry the next day (1 DTE), For this trade setup, I got 0.006 SOL.

Soon SOL coin price climbed above my strike price and at one moment was trading around $38.2.

Solana price September 12, 2022

Unlike in the stock market, options in cryptocurrencies are settled in crypto itself (at least on the Derbit platform). This means that if the contract is going to expire above my strike price, I will pay the difference between the strike price and the spot price in crypto. If it will expire at $38.2, the difference will be $2.2 or 0.0576 SOL.

In the end, I will have just  0.9484 SOL (1+0.006-0.0576) which obviously is less than what I invested (1 SOL), but as the SOL price has risen, my coins still will cost more, 0.9484*38.2 = $36.22. As my original investment was $34.8, i actually would earn from this trade $1.42 or about 3.71% in just one day.

Not bad at all (especially, if we are trading in larger lots, say 100 coins at a time), but that would require me to withdraw coins to exchange and sell with a profit. Depending on the withdrawal rate speed i could actually lose (if the crypto price drops) or gain (if the crypto gains) during the withdrawal time.

The additional downside of withdrawing on the expiry, it would be hard to time the market and enter into a new trade again. This option would rather work better for investors with larger investments, who trade several times per year/month

Another option we could do - is buy back our current position and open a new one with a higher strike price and expiry further out (roll up and forward). That's what I did:

  • SOL-13SEP22-36-C    trade    close buy    1    -0.048
  • SOL-23SEP22-38-C    trade    open sell    1     0.06

Here I bought back my current strike $36 call option paying 0.048 SOL and sold a new covered call some 10 days later with a higher $38 strike price and received 0.06 SOL

The aftermath of this trade: +0.018 SOL and rolled up strike price to 38

What happens next?

On the expiry date, September 23, 2022, SOL is trading under $38 per share -  options expire worthlessly and I keep the premium and start over - if SOL trades above $38 on the expiry date, I pay the difference in crypto. Say SOL trades $40 on expiry, I need to pay the difference between the spot price and strike price, which is $2, in crypto which would equal 0.05 SOL.

I would be left with 1+0.0018-0.05= 0.9518 SOL

But as the SOL price increased from $34.80 to $40, my coins would be worth $38.07. I would need to exchange them back on exchange.

My profit would be $3.27 or about 9.38% in 12 days. Quite a good outcome. Especially if done with more coins, say some 100. Again, on the expiry date, I could roll up and forward or withdraw to exchange and book profit.

Hope it helps, but if you still feel puzzled - I'm offering paid - online live course Selling Covered Call Options on Crypto (BTC/ETH/SOL)