New Covered Call Positions on Bitcoin and Ethereum

Updated: 3 July, 2023 seen 30

On July 3, 2023, I sold two covered call positions on Bitcoin and Ethereum, using perpetual futures as collateral.

At first, I bought 0.1 BTC futures at $30,809 and simultaneously sold a 0.1 call option with a strike price of $31,000 and an expiry of July 7, 2023, for this trade setup I was rewarded with a 0.00155 BTC premium. 

Perpetual futures are traded with 50x margin on the Deribit trading platform, and to control futures worth 0.1 BTC I was required just 1/50 in margin collateral, or to set up this trade it was enough with about 0.0020 BTC / 61.6 USD + 0.0141 BTC / 434.28 USD margin for 1 call options.

Total investment: 495.88 USD

On the expiry date, July 7, 2023, BTC is trading under $31,000 per coin -  options expire worthless and I keep premium - if BTC trades above $31,000 I must pay the difference between spot and strike price.

Say BTC expires at $32,000. I would need to pay a difference of $1,000 in crypto itself (1000/31000) or about 0.0322 BTC.

But as I additionally have a perpetual future established at $30,800 I will gain from this future contract $1,200 or converted to crypto 0.0387 BTC

Of course, I should manually close the futures position at the time of expiry.

In case this call position will get assigned at $32,000 I will earn

0.00155-0.0322+0.0387 = 0.00805 ETH / 257.6 USD

That’s quite an impressive potential return on investment of 51.94% in just 4 days

Break-even: $30,331

Second, I bought 1 ETH futures at $1952 and simultaneously sold a 1 call option with a strike price of $1,950 and an expiry of July 7, 2023, for this trade setup I was rewarded with a 0.019 ETH premium. 

To set up this trade it was enough with about 0.02 ETH / 39.04 USD + 0.15 ETH / 292.8 USD margin for 1 call options.

Total investment: 331.84 USD

On the expiry date, July 7, 2023, ETH is trading under $1,950 per coin -  options expire worthless and I keep premium - if ETH trades above $1,950 I must pay the difference between spot and strike price.

Say ETH expires at $2,100. I would need to pay a difference of $150 in crypto itself (150/1950) or about 0.076 ETH.

But as I additionally have a perpetual future established at $1,952 I will gain from this future contract $148 or converted to crypto 0.075 ETH

Of course, I should manually close the futures position at the time of expiry.

In case this call position will get assigned at $2,100 I will earn

0.019-0.076+0.075 = 0.018 ETH / 37.6 USD

That’s quite an impressive potential return on investment of 11.33 % in 4 days

Break Even: $1,914.92

Now, the biggest drawback from such trading, as always with covered calls itself is a significant price drop, which might be even more painful when trading on margin with leverage.

In case I will close these positions this Friday with a profit, I will reinvest the profit into NKE stock!

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