At the start of February, I capitulated. Ethereum had pushed our structure into a place I didn’t like. Too many moving parts. Too much sensitivity to short-term price swings. Too much reliance on margin. I made a decision to reset the strategy almost from scratch.
The new approach was simple: focus on spot ETH. Keep it clean. If I use margin, use it deliberately. The target was clear - reduce margin to zero over time while keeping the spot position intact. In theory, that’s conservative. In practice, I started with roughly 50% margin.
Fifty percent doesn’t feel aggressive when markets are calm. It feels manageable. It feels “strategic.” But leverage doesn’t care about feelings. It magnifies outcomes.
The idea behind the reset was borrowed from what has been working very effectively in our stock covered call portfolio. Own the underlying. Generate income against it. Gradually reduce leverage. Let time and cash flow do the heavy lifting.
Simple works. Complexity seduces.
A few weeks passed. It was the end of February. ETH structure was stabilizing. Margin was still there, but under control. And then came the thought that has hurt many portfolios before mine: Maybe we should add a Bitcoin strategy.
Call it FOMO. Bitcoin was moving. Ethereum was behaving. I thought it wouldn’t hurt to add a small tactical position — a 1 DTE put option. If BTC dropped, we would acquire it at a discount. If not, we’d collect premium. Seemed harmless.
Except it wasn’t harmless.
Selling a short-dated put increases margin exposure instantly. You’re not just “collecting yield.” You are adding downside convexity. You are short tail risk. I placed the trade on a Sunday. That was mistake number one.
Sundays in crypto derivatives are dangerous. Liquidity is thinner. Broader markets are closed. If sentiment shifts overnight, there is no equity market signal to cushion the move. You wake up into volatility.
By Monday morning, the “safe” -0.10 delta put was deep in the water. Delta exploded to around -0.80. What was positioned as a low-probability income trade suddenly behaved like outright long exposure with leverage.
That’s tail risk.
It’s not the slow grind lower. It’s the regime shift. The instant repricing. The jump from “unlikely” to “almost certain.”
My sentiment flipped just as fast as the delta did. I was ready to close the position at a loss and not look back. The internal narrative changed from “smart premium harvesting” to “unnecessary risk.”
Fortunately, price bounced. BTC pushed slightly above my strike. The option expired worthless. No assignment. No damage.
But that outcome does not validate the decision. It exposed it.
Tail risk is not about what usually happens. It’s about what can happen in a compressed time frame when leverage meets volatility. A 1 DTE option can move from irrelevant to catastrophic in hours. Especially when layered on top of existing margin.
The deeper issue wasn’t Bitcoin. I do want Bitcoin exposure. The issue was structure.
Adding a short-dated short put on margin, on a Sunday, when already running leveraged ETH exposure - that’s stacking correlated tail risk. It only feels small because the premium is small. There is a better way.
If I want Bitcoin exposure, I can take a small percentage of weekly options income and simply buy spot BTC. No leverage. No forced timing. No liquidation cascade risk. Just slow accumulation.
That’s actually how we built positions in the early days of the fund. Income first. Assets second. No hero trades.
The lesson here is discipline.
When you reset a strategy, don’t quietly reintroduce the same risk through a different door. If the objective is to reduce margin to zero while keeping spot intact, every new trade should move you closer to that state - not away from it.
Another lesson: low delta does not mean low risk. It means low probability under current assumptions. When volatility expands, assumptions break.
And finally, sentiment is a poor risk manager. Mine flipped in hours. Markets do not care about conviction. They price risk instantly.
Marcus Aurelius wrote about controlling what you can and accepting what you cannot. In trading, you cannot control price. You can control structure. You can control leverage. You can control exposure to tail events.
Stay focused. Avoid complexity for the sake of action. If the strategy is to reduce leverage, then reduce leverage. If the goal is Bitcoin exposure, accumulate it without introducing hidden convexity against yourself.
Tail risk doesn’t announce itself loudly. It hides in small premiums and short expiries. And it always feels manageable — right until it isn’t.