Selling covered calls is one of my favorite income-generating strategies in the stock market. For a time being, I've been selling options on crypto too at the Deribit.com exchange.

So far I can report mixed success with crypto cash-settled options. For some 6 months, I stopped dealing with crypto at all, instead of focusing on the stock market.

At one of the many investor Facebook groups I follow, I noticed a user reporting Bitcoin dipping 10%, and I asked the author, does he knows some reputable bitcoin exchange we could sell options either cash settled or settled in the cryptocurrency itself, as what I remember from deribit the options are crypto cash-settled. Which is something I don't like and don't understand completely.

See this article for more details: Selling Covered Calls on Crypto (Ethereum / Bitcoin) with Deribit?

Anyhow, I decided to perform another test - buy ETH at Coinbase, deposit to Deribit, and sell 1DTE covered call with near the money strikes.

So I bought 0.177370 ETH at $503

Deposited to Deribit

  • Sold 1 call options with the strike price of $510, for what I get 0.0115 ETH 
  • With ETH Price $503 it means $5.78, which is a nice potential income yield of 1.1% in just one day
  • On November 27, ETH was trading at $520, and our position was closed for a price of 0.0191 ETH
  • Our total gain from this transaction: 0.0115-0.0191 = -0.0076 ETH (With ETH price $520, that would mean a loss of -$3.9

Some might say, that Okay, we lost here, but we gained on price, now let's check it out to:

  • At the start, we invested $89.21 (0.177370 ETH at $503)
  • In the end, we have 0.169303 ETH and the new ETH price is $520, so in total, we are left with $88.02

Again, despite ETH gained 17$ in 24 hours, we lost more than a dollar from selling a call option on it. Something would never happen in the stock market when selling covered calls.

ETHEREUM crypto options

Just to simply illustrate, say there is a stock trading at $5 per share, to sell a covered call on it we will need 100 shares, so in total $500 (there are plenty of stock at $5 we could sell covered calls on)

Suppose we write (sell) a weekly/ monthly covered call on this stock with the strike price of $6 dollars per share, and for that, we get say 0.2$ per share or $20 in total (that is a 4% yield), now the expiry day comes, and the stock is trading at $620, we agree to sell our stock at $6 + keep our premium ($20). 

Our total gain in cash $120 (we bought for $500, sold for $600, and also get $20)

The one way investors could profit selling calls is by hoping that ETH will never reach strike prices, but this is a strange way of selling covered calls. 

I will keep experimenting with new ways to invest in crypto options. For stock traders, the best option probably would be a bitcoin ETF, but there still is none available.

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