23 December, 2019 seen 366On September 23, 2019, I made my first options trade on futures (FOP). Originally I wanted to sell a bearish call spread on ES, but just shortly I opened position, markets tanked and I opened another spread, this time a bull put. At the end, it formed a nice iron condor. Date: September 23, 2019 Futures Price: $2,995 Trade Set-Up: SELL 1 ES SEP 23, 2970/…
In this article, I will share a practical example of how to potentially make $200/mo from trading ETH options on the deribit or any other reputable crypto trading platform.
There are several ways to make money trading Ethereum or any other crypto, in this article I will focus on selling call options.
Call options are financial contracts that give the option buyer the right but not the obligation to buy a stock, bond, commodity, or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.
Without further ado:
On December 7, 2022 Ethereum was trading $1,226 per coin
When looking at the options chain on deribit trading platform (Dec 30 expiry about 23 days) I noticed that $1,300 strike is trading around 0.045 ETH ($55)
Now, there are several options for how we could try to get that $200/mo here
One of the easiest (but not without risk) would be actually buying 4 ETH coins, paying $1,226 per coin, and simoulteounly selling 4 call options with a strike price $1,300
If on the expiry ETH is trading under $1,300, excellent - we just pocketed 0.178 ETH (4*0.0445) or about $218.22 in just 23 days. That's quite a good result and for the beginners, i would stick with that, though keep in mind in this case you actually need to buy 4 ETH coin, paying in total $4,904 and you are taking the risk coin could drop significantly, in worst case scenario coin could drop to 0.
After several years of trading, I have learned some lessons, and one such lesson is - hedging coins with futures. Or after buying 4 coins at one place I would actually short sell 4 coins at another (In my case I'm buying on Coinbase but trading on Deribit)
Shorting futures would greatly improve the downturn risk, by literally eliminating it. In case the coin would drop to $1,000, we would lose $226 per coin, but as we have short-sold futures, it would compensate for the drop by gaining the same $226 per coin.
After the latest FTX bankruptcy, I'm hedging with futures for most of my crypto buys.
Let's look at what would happen in case the ETH rallies to $1,600 (quite possible)
As we have our strike prices set at $1,300 we would need to pay the difference ($300) in crypto 0.23 ETH (300/1300)
4+(0.045*4)-(4*0.230 = 3.26 ETH
Ouch, we would actually lose 0.74 ETH in such a scenario, but as the ETH price has risen from $1,226 to $1,600, the new value of our coins would be $5,216 (still we would make $312 from this outcome)
In case we were short selling, we would need to close our short positions with a loss of $1,496 (4*374), we would take quite a big loss from such a trade -$1,184 ($3,720-$4,904)
Now as you can see futures can do both good and harm. but what to do?
In the case of short-selling, I would also go along with futures in case the price of $1,300 would ever touch, in such case, I would again limit the max loss to a minimum, or almost zero.
With $1,600 at expiry, we would lose $1,496 from short futures but would gain $1,200 from long futures difference -$296. In a scenario with both short and long futures, we would make +$16 (312-296) not the $200 we were looking at the start, but definitely also not losing $1,200
in case you just bought and parked your coins, you would probably make the most, but then- how do you know, when to buy, when to sell?
For the begginer traders - I would go with simple buy the coin, sell the call option on it, for more seasoened and risk hungry traderds - hedging with futures.
How about you? Any tips - how to make $200 per month by trading crypto? Leave a comment - readers and I would love to hear!